1 ANSWERS TO THE QUESTIONS ON THE WACC RECEIVED BY

ANSWERS TO THE QUESTIONS ON THE WACC
RECEIVED BY IATA AND EASYJET
27 Oct. 2016
This Memorandum provides the answers to the questions on the WACC sent by
IATA/Assaereo/Ibar and easyJet in advance of the second hearing of October 27.
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Question on Risk Free Rate and Risk Factor: see answer A5a. of the document “Risposte
alle osservazioni preliminari degli utenti alla proposta tariffaria 2017-2021. Incontro con
gli utenti del 5.10.2016”.
-
Question on the asset beta: : see answer A5b. of the document “Risposte alle osservazioni
preliminari degli utenti alla proposta tariffaria 2017-2021. Incontro con gli utenti del
5.10.2016”. The equity beta of ADR for the second regulatory tariff period 2017-2021 has
been updated using the methodology provided in the Concession-Contract Program. The
estimate of the beta was made on the sample of European companies publicly listed
(Copenaghen, Frankfurt, Paris, Venice, Wien and Zurich). The equity betas of the airports
included in the sample were calculated using:
-
Weekly and monthly returns of the stocks of the single airports, calculated over a
time period of 3 and 5 years;
-
Weekly and monthly returns of an index of stocks, representative of the market
portfolio – the Euro Stoxx 600, over the same time periods.
Equity betas have been converted i with the Modigliani-Miller formula1 into asset betas,
which represents the systemic risk attached to the airport business. Then the specific
Equity beta for ADR has been calculated with the Modigliani-Miller formula, using the
gearing calculated for the 2017-2021 regulatory period. The Venice airport has been
excluded from the sample, since liquidity tests showed that its shares were less liquid than
those of the other airports. The Table below shows Equity betas e asset betas calculated
for the European airports in the sample, and the average asset beta used for the
calculation of the beta for ADR in the regulatory tariff period 2017-2021.
1
The Modigliani-Miller formula is used to go derive the asset beta from the equity beta, and
viceversa. The formula is given by
(
[
)
]
where
is the average of the corporate
tax rates in the country of the airport, D/E is the average ratio between liabilities and financial
asset, equity beta is the value calculated through the regression of the return of the stock of the
airport against overall market returns.
1
5 anni
3 anni
Asset beta of Comparable Airports2
Francoforte
Parigi
Venezia
Vienna
Zurigo
[1]
[2]
[3]
[4]
[5]
Media
Mediana
Media, escl. Venezia
Mediana, escl. Venezia
[6]
[7]
[8]
[9]
Francoforte
Parigi
Venezia
Vienna
Zurigo
[10]
[11]
[12]
[13]
[14]
Media
Mediana
Media, escl. Venezia
Mediana, escl. Venezia
[15]
[16]
[17]
[18]
Equity Beta
settimanali
[A]
Equity Beta
mensili
[B]
D/E
[C]
Note
Note
Note
0,88
0,75
0,52
0,59
0,76
0,88
0,79
0,47
0,62
0,88
0,76
0,35
0,22
0,44
0,24
0,92
0,77
0,56
0,76
0,78
0,99
0,79
0,50
0,66
0,76
0,79
0,39
0,22
0,68
0,33
Asset beta
Asset Beta
settimanali
mensili
[E]
[F]
[A]/(1+[C]x(1- [B]/(1+[C]x(1KPMG
[D]))
[D]))
Tax Rate
[D]
30%
33%
28%
25%
18%
30%
33%
28%
25%
18%
0,57
0,61
0,45
0,44
0,64
0,57
0,64
0,41
0,47
0,73
0,54
0,57
0,57
0,59
0,56
0,57
0,60
0,61
0,59
0,61
0,49
0,50
0,62
0,64
0,62
0,44
0,44
0,60
0,56
0,59
0,58
0,60
0,55
0,60
0,57
0,61
0,57
0,59
Media overall [19]
Media overall, escl. Venezia [20]
Note:
[A],[B]: Elaborazioni su dati Bloomberg. Beta adjusted secondo la formula: 2/3 x beta eq. + 1/3 x 1.
[C]: Elaborazioni su dati Bloomberg.
[6]: media [1] a [5].
[7]: mediana [1] a [5].
[8]: media [1], [2], [4],[5].
[9]: mediana [1],[2],[4],[5].
[15]: media [10] a [14].
[16]: mediana [10] a [14].
[17]: media [10],[11],[13],[14].
[18]: mediana [10],[11],[13],[14].
[19]: media [6][E],[6][F],[7][E],[7][F],[15][E],[15][F],[16][E],[16][F].
[20]: media [8][E],[8][F],[9][E],[9][F],[17][E],[17][F],[18][E],[18][F].
The asset beta calculated on the sample of European airports publicly listed lies in the
range 0,57-0,59.
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Question on the additional beta: see answer A5b. of the document “Risposte alle
osservazioni preliminari degli utenti alla proposta tariffaria 2017-2021. Incontro con gli
utenti del 5.10.2016”.
-
Question on the increase of cost of debt by 30 basis points: the cost of debt is increased
by 30 basis point which are the minimum value between the amount of 30 basis points
allowed in the Concession-Contract Program and the administrative costs of issuing debt
as provided in the Table below.
2
The market portfolio utilized for the estimation of the equity beta is the Euro Stoxx 600, the
estimation has been made over the periods 01/01/2013 – 31/12/2015 and 01/01/2011 – 31/12/2015.
2
Table 1: Additional Costs of Issuing Debt
Linee
[1]
[2]
Media ponderata
Valore,
Valuta
mln
[A]
Note
€
£
7,98
5,46
Tasso di
cambio
[B]
T4
Valore,
€ mln
[C]
[A]/[B]
Tasso di
interesse,
coupon %
[D]
Note
Tasso di
interesse
complessivo, %
[E]
Note
Premio, %
[F]
[E]-[D]
Premio adj. Per il
tasso di interesse,
%
[G]
[F]/[B]
1,00
0,76
7,98
7,22
3,25%
5,44%
3,46%
5,78%
0,21%
0,34%
0,21%
0,45%
0,27%
0,32%
[3]
Note:
[A]: 'transaction costs' capitalizzati sulle linee di finanziamento alle date di accensione dei rispettivi finanziamenti.
[D],[E]: tassi di interesse complessivi pre e post 'transaction cost' capitalizzati in [A].
[3]: Media ponderata di [1] e [2], pesata per il valore del finanziamento complessivo in euro.
Fonte: ADR.
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Question on the Market Risk Premium: see answer A5c. of the document “Risposte alle
osservazioni preliminari degli utenti alla proposta tariffaria 2017-2021. Incontro con gli
utenti del 5.10.2016”. Additionaly, we highlight that economic theory states that the
MRP has to be calculated as the arithmethic mean of long-run historical data of the
equity market returns against the return of risk free assets. To this purpose Dimson,
Marsh and Staunton (DMS) is the most common reference for ERP estimates. A recent
study considered in the latest WACC decision by AEEGSI of December 2015 proposes to
use the weighted average of the arithmetic and geometric mean; the weight placed on
the geometric mean however would still be limited, being based on the relevance the
years of the regulatory period have on the overall historical data.3 The arithmetic mean
of the ERP for Italy, as measured by DMS, is 6.5%, while the geometric mean is 3.1%.
The weighted average, with a weight of 2/3 for the former, 1/3 for the latter, is 6.1%. For
the Eurozone countries as a whole, the arithmetic mean of the ERP is 5.9%, while the
geometric mean is 3.3%.4 The resulting weighted average for the Eurozone is 5.6%. The
Equity Risk Premium used for the second regulatory sub-period (2017-2021) is 5%.
3
According to Prof. Stewart Myers, while the geometric mean of the market returns is an indicator
often used by financial analysts, it should not be taken as a reference when calculating the cost of
capital in the Capital Asset Pricing Model (CAPM)/WACC. Some researchers have recently found
statistical basis to argue in favor of a correction to the arithmetic mean of the historical data. They
suggest using the weighted average of the arithmetic and geometric mean, with the weights
accounting for the length of the regulatory period with respect to the overall historical data. In
this regard, Prof. Myers notes that the geometric mean would still have a very limited impact on
the ERP, given how short the regulatory periods are when compared to the historical data. As a
reference, see: E. Jacquier, A. Kane, e A. Marcus, “Optimal Estimation of the risk premium for the
long run and asset allocation: A case of compounded estimation risk”, Journal of Financial
Econometrics, 2005, Vol. 3, No.1, 37-55; Stewart C. Myers, “CAA price control proposals,
Heathrow and Gatwick Airports”, January 2008; Stewart C. Myers, “Cost of capital parameters for
SP Power Assets-Estimating the market risk premium”, August 7, 2012.
4
The Eurozone countries included in the ERP calculation are, as shown in table, Belgium, Finland,
France, Germany, Ireland, Italy, Netherlands and Spain.
3
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Question on the WACC used for the Base and Bridge years: the Base and Bridge years are
the years 2015 and 2016. They are the last two years of the 2012-2016 five years tariff
period. Tariffs of 2015 and 2016 have been calculated on allowed regulatory costs with
the WACC of Annex 23 of the Concession-Contract Program. Allowed regulatory costs
in 2015/16 needed for tariffs in the new 2017-2021 five-year period are calculated with
the WACC provided in the documentation for the first public hearing of October 5.
4