The optimal debt ratio of public-private partnership projects

Borliang Chen, Chi Kuo Mao, Jin-Li Hu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


Many governments regard the public-private partnership (PPP) as the best approach to implement high speed rail projects. However, most PPP schemes incorporate long-term debts in the capital structure due to huge initial investments and long recovery periods. An optimal capital structure, meaning the financing mix between debt and equity, maximizes the value of the PPP project. The terms and conditions of the debt are subject to negotiations between the private sponsor and the financiers, given the concession agreement between the host government and the sponsor. Debt ratio is a key term in the project finance funding agreement. This study contributes to the project preparation of PPP schemes by developing a simple model to determine the optimal debt ratio for financing PPP projects and to establish the relationship between debt ratio and hurdle rates of projects' financial indices. Results suggest that the hurdle rate of financial net present value determines the lower limit of debt ratio and the hurdle rate of times interest earned decides the upper limit of debt ratio in the Taiwan high speed rail project.

Original languageEnglish
Pages (from-to)239-253
Number of pages15
JournalInternational Journal of Construction Management
Issue number3
StatePublished - 3 Jul 2015


  • debt ratio
  • optimal capital structure
  • project negotiations
  • Public-private partnership projects

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