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Investigation of the effect of incorporating Real Options in the Valuation of Petrochemical Plants in Iran

Kheiroddin, Mohsen | 2019

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 55795 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Bahramgiri, Mohsen
  7. Abstract:
  8. Real option is one of most promising and crucial concepts in corporate valuation and budgeting process. They are very similar to financial options except that their intrinstic values are calculated based on a company’s practical flexibilities rather than financial contracts. Most previous publications in this field are related to upstream sectors of oil, gas, or mining as well as high-tech industries. The application of this concept in chemical industries has been poorly investigated, and the majority of those limited number of papers have evaluated real options in down-stram sectors. Thus, the application of real options in midstream parts of chemical industry was not thoroughly investigated. Upsteam and midstream oil and gas sectors play an indispensable role in the Iran’s economy and capital market. In addition, there are several uncertainties and risks that make using real option in petrochemical plants totally relevant. Major risks, uncertainties, and complexities in this industry are caused by (1) uncertainties in products and raw materials’ prices due to fluctuations in global commodity market, (2) operational complexities and plants’ dependency to each others, (3) certain risks that are mokhtase iran such as: severe exchange rate risk, government interference in utiliteis and products’ pricing, and sanctions. In this thesis we aim to detect the most influential real options that can affect petrochemical plants’ valuation significantly. For this, we cooperated with the Civil Pension Fund Investment Company whose portfolio consists of a diversified set of shares in different petrochemical plants. The main real option that have been evaulated are as follows: The ability to change vendors, suppliers, and buyers (which is particularly important when sanctions are imposed on the country) The ability to increase the nominal capacity of a plant or build a new one The ability to stop the operation of plants that do not generate profit The ability to extend the value chain of a plant towards upstream or downstream The ability to change the feed of the plant depending on the price changes Attractiveness of a plant for another company that gives you the exit opportunity in all cases.
    We will explain all these option thoroughly in the third chapter of this thesis
  9. Keywords:
  10. Real Option Method ; Petrochemical Industries ; Valuation ; Real Option Valuation (ROV) ; Uncertainty ; Upstream Petrochemical Industries ; Intermediate Petrochemical Industries

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