Hence, such expenditure should be deducted from our cashflow from operations to arrive at the net cashflow before dividend payments. Under the Airport Authority Ordinance, the Financial Secretary has the power to request AAHK to distribute dividend after consultation with the AAHK Board. We have distributed about 80% of our profits in past years by way of dividends. We have assumed the same level of distributions in the projections. Based on the foregoing, the forecast profits for the period from 2013 to 2030 under Option 1 will amount to HK$101.6 billion after depreciation charges of HK$68.2 billion and a net increase in working capital of HK$6.1 billion. In the same period, capital expenditure on committed capital projects and routine replacement of fixed assets will amount to HK$79.5 billion. On the basis of the previous practice of payment of approximately 80% of the preceding year’s profits by way of dividends, which will amount to HK$79.6 billion, the net cashflow after dividend is forecast to amount to HK$4.6 billion (representing HK$101.6 + HK$68.2 – HK$6.1 – HK$79.5 – HK$79.6 billion). When comparing the cash outflow required for the capital expenditure with the net cashflow after dividend, it is clear that there would be a funding shortfall for most of the years between 2013 and 2030. The annual funding shortfall is shown in Figure 7.7 and the total funding shortfall between 2013 and 2030 is estimated to be HK$37.9 billion, peaking in 2030 (see Appendix 1 for details). Figure 7.7 Option 1 – Annual Funding Shortfall/Surplus Maximum funding shortfall after dividend, peaking in 2030 (HK$37.9 Billion) in HK$ billion (8) (6) (4) (2) 0 2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Annual Funding Shortfall Annual Funding Surplus Figure 7.8 Option 1 – Cumulative Funding Shortfall after Debt Financing HK$37.9 Billion Pre-financing Funding Shortfall About HK$25 Billion Cumulative Funding Shortfall after Debt Financing (HK$37.9 Billion – HK$13 Billion) About HK$13 Billion Additional Debt (Less Interest Expense) in HK$ billion 40 30 20 10 0 (10) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Based on the assumptions set out on page 46, our financial advisor has assessed our prudent borrowing capacity on the assumption that we would expect to maintain a high investment grade standalone credit rating (at a minimum of A) so as to ensure our continued access to the debt market at a reasonable cost26. The advisor considered that the amount that we could borrow on this basis is approximately HK$26.0 billion, representing a net additional borrowing capacity of about HK$17.0 billion over our average level of borrowings of about HK$9.0 billion. As additional interest costs would be incurred on these borrowings, the net incremental cashflow available from borrowings up to 2030 would amount to approximately HK$13.0 billion under Option 1. This amount would not be sufficient to meet the funding shortfall as shown in Figure 7.8. 2030 7 COMPARISON BETWEEN THE TWO OPTIONS 26 In determining our prudent borrowing capacity, the financial advisor has applied a range of criteria which take into account the key financial metrics analysed by rating agencies, lenders’ measures of AAHK’s ability to service debt and the robustness of AAHK’s financial profile. HKIA MASTER PLAN 2030 47