In 2007, Hong Kong MTR Corporation Limited (MTRC) was offered a 20% stake in Metronet Rail (Metronet), one of the two private sector engineering consortia contracted to run and maintain the London Underground rail network, under a 30-year public private partnership (PPP) agreement with London Underground Limited (LUL). This investment had the potential to transform MTRC from a local rail operator into an international player, giving the Company a major foothold in operating urban rail systems in Europe. However, the LUL PPP was widely regarded as one of the most complex private finance arrangements in the UK public sector, and there were a host of uncertainties for Hong Kong MTRC to contend with about its ability to make a success of the project. This case would allow students to explore the motives behind the PPP agreements to operate government assets and the implications of PPP for management's operating and financial strategy. At the same time, students can also evaluate the offer made to the MTRC and the appropriateness of the Company's acceptance.

This case reviews the development and financing of the Dabhol power plant in India's Maharashtra state. This project was controversial from inception for three main reasons: the promoter (the now defunct Enron Corporation) sought to minimise its capital commitment in the project; the project economics relied on high final output pricing relative to prevailing (subsidised) price levels; and both project and financing transactions failed to protect adequately against political disruption. For practical purposes it may be considered an example of a failed project finance venture. This case explores in particular how risks associated with developing such ventures in a politically volatile environment may be mishandled by promoters and financiers. In principle it aims to illustrate the difference between managing operational risks and managing and mitigating project risks in an uncertain institutional setting.

This case explores events surrounding the development of the Sydney Cross City Tunnel, an innovative infrastructure project developed by the New South Wales government in Australia in conjunction with Cheung Kong Infrastructure, Cheung Kong's Hong Kong infrastructure investment arm. The tunnel opened for traffic in 2005. This case analyzes three matters: the political and institutional background that led to the decision to develop the Cross City Tunnel; the general economic assumptions upon which the venture had been based; and the build-operate-transfer project finance arrangements put into place to develop and finance the tunnel venture. The case explains the project finance arrangements surrounding a typical road transport infrastructure which seems to have failed, and raises questions about estimates of demand for the tunnel and traffic management arrangements surrounding access to the tunnel.

Deals with the operational phase of a privately operated urban infrastructure project, Hong Kong's Western Harbour Crossing, a toll road tunnel from West Kowloon to Sai Ying Pun on Hong Kong Island, developed as part of the prestigious Airport Core Program supporting the new Hong Kong Airport development in the early- to mid-1990s. The tunnel opened for business in 1997 and has underperformed financially since then. Explores the hypothetical purchase of the tunnel as an infrastructure portfolio asset by a prominent bank acting for a private equity group. The bank is also interested in providing long-term debt financing on a non-recourse/limited recourse basis to the potential purchasers. Revisits the economics of the project, valuation of the tunnel as a going venture, and financing of the purchase, and discusses the merits of investing in it as a portfolio decision. Considers two corporate/project finance activities. First, as a fundamental capital budgeting function, considers valuation of the Western Harbour Crossing as a going concern relative to its historical cost ("book value") in order to highlight the problems associated with sunk costs and irreversibility in underperforming real fixed assets structured as project-financed ventures. Secondly, outlines the potential purchaser's financing decision and the approach that banks take in syndicating very large financial commitments to very risky projects.

In late 2004, Macau, a gaming and tourism Mecca in Asia, caught the attention of investors and casino operators around the world. From a wider perspective, the city's new casinos and resort projects are expected to have a significant spillover effect on the entire economy and society. Presents insights into the history and development of this rapidly emerging gaming market and analyzes the economic opportunities arising from such development. Drawing on the experience of Las Vegas, examines how Macau could create a new concept of gaming packaged in destination entertainment and what changes are expected in its gaming industry as well as its economic and real estate development.

Set in 2003, this case presents the relative merits and demerits of direct and indirect methods of international property investment from the perspective of an Australian property company, LandLease (Asia) Property Ltd. (LL). It wished to gain exposure to the Hong Kong property sector and had the option of investing directly by acquiring real property assets or indirectly by acquiring interests in investment vehicles whose underlying investment performance was linked to the property sectors. LL was particularly interested in creating an investment portfolio and listing it as a REIT in Hong Kong. Compares and contrasts the most common forms and strategies of real estate investment. The relative attractiveness of direct and indirect international property investments will depend on the requirements, objectives, and financial strength of the investors. Despite differences in the underlying asset base and quality, direct and indirect investments are not mutually exclusive.

Hongkong Land Holdings Ltd. (HKL), the property arm of the Jardine Matheson Group, is a leading property investment, management, and development company with a major portfolio in Hong Kong and other property and infrastructure interests in Asia. In early 2000, HKL was faced with significant changes in its business environment in the Central District in Hong Kong, where it was the leading landlord of Grade A retail and office real estate. It had commissioned a report from consultants to inform the company on developments in the Grade A retail and office markets and the influence it might have on the company's operations. One of the major issues was how to reposition the company's aging properties to achieve optimal returns in a competitive market.

Provides real estate market data for the analysis of an office lease or buy decision. Demonstrates what is known as the "leasing puzzle"--the answer simply being that the two forms of financing are not cost equivalent in the presence of capital market imperfections, despite both being credit forms. Explores asset-specificity arguments to support the view that generally, a firm should not own an office unless it is dictated by its core business. Presents two opposing anecdotes to illustrate why trading companies should not take the opportunity to capitalize on a buoyant real estate market. The argument is that shareholders do not need trading companies to invest in properties for them, because they can do this through their own investment portfolio activities. Also explores issues such as shareholder rights and accounting and tax implications. Analysis provides ample materials for debate.

In mid-1993, Hutchison Whampoa Ltd. (HWL), a respected company based in Hong Kong, was planning to demolish the Hilton Hotel to make way for a highly lucrative office building. The Hilton Hotel was one of the territory's oldest and best-known landmarks. It was wholly owned by HWL. To proceed with the redevelopment plan, HWL proposed to compensate the Hilton Group for an early termination of its 50-year management contract. The cost for compensation was estimated to be around U.S. $125 million. Before approaching the Hilton Group for the buy-out, the chief development executive of HWL hoped to convince himself and the directors that the deal was necessary and that the redevelopment plan would be beneficial to both the group and its shareholders. This case explains the background to the Grade A office rental market in Hong Kong and provides statistics to illustrate the major trends in the market and causal factors over 20 years.

Citic Pacific Ltd. (CPL) had to decide whether to purchase newly reclaimed land at the waterfront of Victoria Harbour, Hong Kong, and develop a Grade A office building for investment purposes. The decision was to be made at an approaching cyclical high point in the market for Grade A office space, in the second half of 2000. CPL knew that the commercial real estate market was extremely cyclical and that very few companies active in the market had managed to time rental cycles and investment strategy successfully. If Citic Tower II came onto the market at the right time, it might be far more promising than it appeared in mid-2000. Nobody knows when the "right time" is, of course, but being able to defer the decision to develop while still retaining control over the site could buy time and the option to retain what could be a very good opportunity. In other words, CPL had to value its options.

A major corporate investment decision faces CITIC Pacific Ltd. The company has to decide whether to purchase newly reclaimed land at the waterfront of Victoria Harbor, Hong Kong, and develop a grade A office building for investment purposes.