Simulation-based valuation of project finance investments in sub-Saharan Africa and its effects on net present value and default probabilities

This paper addresses the issue surrounding the valuation of valuing large-scale infrastructure projects located in emerging and frontier market countries. These are economies which, traditionally, have been characterised as having high levels of risk and uncertainty, thus presenting a significant challenge to capital allocation decisions and the associated theme of narrowing the finance gap. In light of this, a case study is used to investigate the impact that simulation has on the valuation of an actual infrastructure project located in a sub-Saharan African economy. Specifically, a Monte Carlo simulation-based cash flow model is presented of an investment into a renewable energy project located in South Africa. Results of the simulation process indicate the degree to which certain variables affect the output factors, juxtaposed with an initial base case. A clear need is established for a more sophisticated valuation method in order to accurately judge the investment opportunity and Monte Carlo simulation is presented as a viable solution.

Grantor dc:publisher.institution

Research of GSB

Year dc:date.issued

2015

Author dc:creator

• De Villiers, Johan

Advisor dc:contributor.advisor

• Biekpe, Nicholas

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/28974

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/28974