Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
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Case Study : A Real Options Approach to an Overseas Project Finance Deal

사례연구 : 해외 프로젝트 파이낸스 투자 사례와 실물옵션기반 투자 의사결정

  • Byun, Jinho (College of Business Administration, Ewha Womans University) ;
  • Choi, Moon Sub (College of Business Administration, Ewha Womans University)
  • 변진호 (이화여자대학교 경영대학) ;
  • 최문섭 (이화여자대학교 경영대학)
  • Received : 2013.04.15
  • Accepted : 2013.06.22
  • Published : 2013.10.15
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Abstract

The Korean Veterans' Pension Fund has previously pre-purchased Gibril Tower on Business Complex in Dubai, UAE, via a project-financed construction investment. Although the property is near completion, the investor syndicate's attempt to debt-finance due arrears was foiled in Dubai central bank's credit control of real estaterelated loans. Accordingly, the investment coordinator offered an additional capital injection, a collateralized leverage, and a maturity extension to the syndicate. If the syndicate rejects the offer, they may risk a nearcomplete capital loss and a possible default of the main contractor. Otherwise, the syndicate may still face uncertainties regarding interest receivables, principal re-payment, foreclosure, economic recession in Dubai, and the Islamic bond bill in the Korean Parliament. A possible exercise of the latter option may be due to the agency-prone nature of pension fund managers. Given these qualitative risk factors as at April 1, 2011, a real options approach-implied optimal decision suggests an extended and complete cash augmentation into the project finance deal.

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