The rate of borrowed capital reflects the interest rate for medium and long term debt financing. Taking into consideration the methodology followed in the previous determination, it is deemed reasonable to calculate that rate based of the risk-free interest rate to which the debt premium is added.
Given that PTC does not issue bond loans, it could be argued that the debt premium corresponded to that of PT SGPS. It should be noted, however, that if the debt premium of PT SGPS was solely taken into consideration, PTC and PT SGPS would be made equal as regards the rating assigned to companies. This could prove to be inconsistent, as these businesses have different levels of risk, taking into account their individual capital structure and businesses.
In view of the absence of a value which enables PTC's debt premium to be measured directly, and bearing in mind that the methodology used for assessing other parameters, such as the gearing and beta, was based on a benchmark integrating the same comparable companies, this methodology is also deemed to be suitable for determining the debt premium. As was the case with the determination of other parameters that make up the cost of capital , PT SGPS was also considered in the sample of comparable companies.
The choice of the maturity and duration of the series should be consistent with the choice previously made for the risk-free interest rate, taking into account that the rate of borrowed capital is obtained by adding the risk-free interest rate to the debt premium. Therefore, a 10-year maturity and a 2-year series will be used. It has been found that the adopted methodology is not far off from the practise followed by some regulators (see table 8).
|
Reguladory Body |
Methodology |
|
IBPT |
Not available. |
|
CMT |
Spread of company bonds + CDS |
|
Arcep |
Benchmark spread based on I-boxx index - bond issue by nonfinancial corporations of BBB rating and maturity between 7 and 10 years |
|
ComReg |
Gearing implicit spread |
|
Agcom |
Spreads of Telecom Italia bonds - 2-year series |
|
Ofcom |
Spreads of BT bonds |
|
ERSE |
EDP five-year CDS contrats (April 2011-31 Aug 2011) |
Source: Website of the respective regulators and BT report
Methodology to be applied from 2012
In the light of points listed above, the debt premium must be calculated using the benchmark of comparable companies.
Data correspond to Credit Default Swaps spreads (10-year maturity) of bond-issuing comparable companies, provided by Bloomberg - historic series for the two years preceding the decision year, monthly observations.
