{
  "url": "https://openlegislation.uk/eu-decision-2013-126/annex-I/division-3",
  "json_url": "https://openlegislation.uk/eu-decision-2013-126/annex-I/division-3.json",
  "legislation": "eudn/2013/126",
  "legislation_title": "Commission Decision of 8 May 2012 on State aid SA.22668 (C 8/08 (ex NN 4/08)) (notified under document C(2012) 3025) (Only the Spanish text is authentic) (Text with EEA relevance) (2013/126/EU)",
  "legislation_url": "https://openlegislation.uk/eu-decision-2013-126",
  "path": "annex/I/division/3",
  "kind": "division",
  "number": null,
  "heading": "Application to Ciudad De La Luz",
  "text": "The average annual return on 10 year government bonds in Spain was 4,1 % in 2004.\nRf = 4,1 %\nAccording to Fernández (2004), the historical market risk premium over government bonds in Spain (during the period 1991-2003, which corresponds approximately to the period prior to our investment) is between 6,8 % and 9,3 % (the difference lies in the method to calculate the average — arithmetic versus geometric). We consider the lower bound of this interval for our estimation of the market risk premium.\nR m – R f = 6,8 %\nFinally, for the estimate of beta, we use publicly available information pertaining to companies that have been identified as direct competitors to CDL by the Spanish authorities.\nIn 2001, KBC Securities provided a report containing the necessary information to calculate the net present value of a 10-year investment in the Carrere Group. Note that both the date and the investment’s maturity roughly coincide with the case at hand. The discount rate used in the KBC report was 12 %, while the reported beta stood at 1,8. Taking into account that the financial risk profile of Carrere is different from that of CDL (Carrere’s capital structure includes debt), we have to adjust this beta and compute the unlevered beta in order to isolate the business risk profile. The formula to obtain the unlevered beta is given by:\nBeta Unlevered = Beta Levered / 1 + 1 – T D/E\nwhere T is the applicable tax rate. The tax rate for France, where Carrere is established, is around 33 %, and the debt to equity ratio data can be found in the original KBC report. At the time of the share issue, the debt to equity ratio stood at 10 %. This magnitude has been confirmed with Bloomberg data.\nUsing these parameter values, we obtain the following value for the unlevered beta:\nBetaUnlevered = 1,68\nA similar assessment was made in Germany in 2008 by Der Spezialist fur Finanzaktien for Studio Babelsberg, another firm identified as a direct competitor to CDL by Spanish authorities. That report assumed a cost of equity of 12 %, and a beta of 1,5. At the time the report was published, Studio Babelsberg was a debt-free company, meaning that its capital structure was identical to CDL’s; hence there is no need to adjust the beta in this case.\nThis direct evidence obtained from detailed reports pertaining to two direct competitors indicates that the beta applicable to CDL is (at least) in the 1,5-1,68 range. In addition, the investment in CDL is likely to involve a higher degree of idiosyncratic risk for the reasons already expounded by the Commission. In other words, CDL’s beta is probably higher than that of its competitors.\nIn what follows, we take the arithmetic average between these two figures and assign it to CDL (despite the fact that the idiosyncratic risk associated with CDL is probably higher). It should be noted that these figures were provided by financial analysts who carried an in-depth analysis of Carrere and Studio Babelsberg.\nThus, the lower bound of the expected return on equity for a private investor would be:\nK e = 4,1 + 1,59 * 6,8 = 14,91 %\nObtaining this number is useful, as it implies that a value for the WACC substantially below 14,91 % can be dismissed out of hand.",
  "extent": "E+W+S+N.I.",
  "status": null,
  "version": "current",
  "annotations": [
    {
      "type": "footnote",
      "label": "f1",
      "text": "Global Insight."
    },
    {
      "type": "footnote",
      "label": "f2",
      "text": "Pablo Fernández (2004), Market risk premium: required, historical and expected. Working paper IESE Business School."
    }
  ],
  "outstanding_effects": [],
  "provenance": {
    "source": "legislation.gov.uk",
    "source_url": "https://www.legislation.gov.uk/eudn/2013/126/annex/I/division/3",
    "retrieved_at": "2026-11-01T15:15:08.984307+00:00"
  },
  "licence": "Open Government Licence v3.0",
  "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/",
  "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives."
}