# 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), Division: Comments on the last submission (25 March)

Extent: E+W+S+N.I.

The 25 March submission lacks methodological rigour and makes some central claims that are at best unsubstantiated. It states that:
…‘To quantify this return and above all the risk premium that a private investor would require from a project, different models are used, the most common of which is the Capital Asset Pricing Model (CAPM). For example, if this model is applied to the case in hand, a private investor ‘would require’ a risk premium, not a return, of 3,75 % in 2000 and 2,07 % in 2004.’
and further presents the following table:
Table 1
Estimate of the risk premium required from CDL according to the CAPM model
Market risk premium
Beta of Ciudad de la Luz
Risk premium required from Ciudad de la Luz
2000
9,49 %
0,395
3,75 %
2004
5,25 %
0,395
2,07 %
In other words, the submission claims that CDL’s Beta is ß = 0,395. This is an unsubstantiated conjecture that is not backed up with any hard and verifiable data. In addition, it is hard to reconcile it with common sense.
Below, we provide direct quotes from Brealey and Myers, the central reference in LECG’s submission.
‘…beta measures how sensitive a security is to market movements. Stocks with betas greater than 1,0 tend to amplify the overall movements of the market. Stocks with beta between 0 and 1,0 tend to move in the same direction as the market, but not as far. Of course, the market is the ‘portfolio of all stocks’, so the ‘average’ stock has a beta of 1,0.’ (Chapter Seven, pg. 174).
In other words, higher-beta stocks mean greater volatility and are therefore riskier.
Investment in CDL is at least as risky as investment in its established competitors whose betas are substantially above 1 (see evaluations made by KBC Securities and Spezialist für Finanzaktien).
Finally, in terms of the risk-free rate, it seems highly opportunistic to refer to the present temporary financial crisis in order to rebut the value chosen by the Commission, which corresponds to the risk-free rate in the period of the investment in CDL.

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Source: https://www.legislation.gov.uk/eudn/2013/126/annex/I/division/7 (the official version)
Page: https://openlegislation.uk/eu-decision-2013-126/annex-I/division-7
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.