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http://dx.doi.org/10.6106/KJCEM.2011.12.2.121

Default Risk Mitigation Effect of Financial Structure and Characteristic in BOT Project Finance  

Jun, Jae-Bum (프라임금융자산연구소)
Lee, Jae-Sue (서울시정개발연구원 도시기반연구본부)
Lee, Sam-Su (LH 토지주택연구원)
Publication Information
Korean Journal of Construction Engineering and Management / v.12, no.2, 2011 , pp. 121-132 More about this Journal
Abstract
One of the advantages of BOT PF(Project Finance) is the government can be protected from risks involved in projects as the private finances, builds, and operates relevant projects. Moreover, the private may avoid outstanding responsibility in case of default thanks to BOT PF's unique financial structure and characteristics. However, despite increasing attention on risk mitigation effect of financial structure and characteristic of BOT PF to default risk with emerging controversies of capital crunch, introduction of IFRS, and contingent liabilities, valuation of default risk mitigation effect caused by financial structure and characteristics of BOT PF still seems sophisticated due to uncertain cash flows, complexly layered contracts, and their interaction. So, this paper is to show the theoretical frame to assess the default risk mitigation effect of financial structure and characteristic of BOT PF with option pricing and related financial economic theories and to provide some meaningful implications. Finally, this research shows that the financial structure and characteristics of BOT PF help mitigate the default risk and default risk mitigation effect increases as change of relevant variables on financial feasibility gets the BOT project less financially feasible.
Keywords
BOT Project Finance; Option Pricing Theory; Financial Structure and Characteristic; Default Risk;
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