Risk Shifting and Long-Term Contracts : Evidence from the Ras Gas Project

[摘要] Risk shifting and incomplete contractinglie at the heart of the agency relationship inherent in theprocurement and financing of large-scale projects such aspower plants, oil and gas pipelines, and liquefied naturalgas (LNG) facilities. Resolving this agency problem iscritical in structuring the nexus of long-termcontracts--construction, operating, output sale, andfinancial contracts--commensurate with the project'sunderlying tehcnological and market organization. Byinvestigating the Ras Gas bonds--the largest and most liquidglobal project bonds ever issued in an emerging marketeconomy--the authors provide empirical evidence of therisk-shifting consequences of contractual incompleteness.They relate the credit spreads of Ras Gas bonds to the bondspreads of the Korea Electric Power Company (Kepco), themajor customer, in the context of a 25-year supplyagreement, the oil price index used to price the LNG,emerging debt market returns, and various systematic andunsystematic risk variables. Consistent with theoreticalpredictions, they find that the risk factors affecting thesales and purchase agreements drive perceptions of marketrisk for Ras Gas bonds. In particular, Ras Gas yield spreadsreflect the market's risk assessment of Kepco. Otherpriced risks are energy price and foreign currency exposure(which influence Ras Gas credit spreads through their impacton Kepco), Korean economic variables, and spillovers fromturbulence in European and Latin American emerging debtmarkets. The authors' analysis shows that the design ofeach contractual arrangement is not independent, becauserisk factors relevant to one contract determine the priceand risk premium of the other. Despite heavy capitalizationand partial guarantees by the parent companies of Ras Gas,the off-take agreement essentially determines the riskinessof the bonds. The authors interpret this as evidence of thenexus-of-contracts view of the firm in the presence ofcontractual incompleteness: Investors bear all residualrisks and price their financial claims accordingly.

[发布机构] World Bank, Washington, DC

[学科分类] 社会科学、人文和艺术（综合）

[关键词] ACCOUNTING;BANKRUPTCY;BANKRUPTCY PROCEDURES;CAPITAL MARKETS;CAPITALIZATION