Project Financing-BT Mode: An Empirical Study On Road Traffic Area

In the context that serious traffic has been hampering the development of civilization in the cities, the central and local governments put traffic infrastructure construction as one of the first priorities. However, due to the short of capital from their own pockets, Build-Transfer (BT) mode, as one of the public-private-partnership (PPP) mode, has been utilized in the project financing in the traffic area in China.The reasons to make use of BT as the main mode in the traffic project financing and construction are multi-dimensional. Majority of the projects have been falling into the territories of the because of four aspects State-owned big construction companies. First, it is less difficult for the potential State-owned investors to explore available financing channels, especial going for the seasoned equity offering because most of them are listed companies. Second, big State-owned companies are more experienced in the aspects of project design and management. It is less difficult for them to secure the operation efficiency in the whole constructing process. It is also easier for them to sort out the safety problems during the construction period. Third, BT mode is a fine choice to employ the rich retaining capital of the State-owned companies into the governmental infrastructure projects, which could release governments from the big pressure of financing and promote the better resource allocation. Fourth, as one of the market mechanism to do sophisticated risk-return calculation between the State-owned companies and governments, it is less difficult for BT mode to balance the different group interests of projects, following the rationale of sincerity and fairness in the allocation of uncertainties and profits. Our methodology is two-dimensional:theoretical and empirical, based on the existing China's and international BT mode research. First, we explore the conception, rationale, and characteristics of BT mode, comparing with other traditional financing and construction model. Second, we set up a model for BT project risk evaluation through a stylish classification of the uncertainties. Therefore, we also give advice on BT project risk control. Last but not the least, we specify a Net Present Value (NPV) model and a Internal Rate of Return (IRR) model to calculate the project return rate.Our thesis based on a case study, i.e., the Tangshan Binhai Broadway BT project, to assess its contribution on operation efficiency, capital structure and risk management. Through our analysis, we hope this successful case could provide a good example on how to combine the financing advantages of state-owned companies and government with the development of civilization in China.