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Investment valuation model for sustainable infrastructure systems: Mezzanine debt for water projects

Juan David Gonzalez-Ruiz (Department of Finance, Universidad EAFIT, Medellin, Colombia) (Universidad Nacional de Colombia Sede Medellin, Medellin, Colombia)
Alejandro Arboleda (Faculty of Engineering, Universidad de los Andes, Bogota, Colombia)
Sergio Botero (Universidad Nacional de Colombia Sede Medellin, Medellin, Colombia)
Javier Rojo (Universidad Rey Juan Carlos, Madrid, Spain)

Engineering, Construction and Architectural Management

ISSN: 0969-9988

Article publication date: 12 March 2019

Issue publication date: 30 May 2019




The purpose of this paper is to develop an investment valuation model using the mezzanine debt mechanism based on blue bonds that explicitly allude to public–private partnerships (P3s) and project finance (PF). Additionally, this study proposes the financial captured value (FCV) theory for measuring how much financial value lenders may capture by becoming sponsors through financing of sustainable infrastructure systems (SIS).


The investment valuation model was validated through the Aguas Claras wastewater treatment plant as a case study.


The empirical results show that lenders may capture financial value by converting outstanding debt into equity shares throughout the operation and maintenance stage. Furthermore, case study results provide new insights into the implications of the debt–equity conversion ratio on the relationship between the sponsors’ internal rate of return and the FCV.

Research limitations/implications

The most significant limitation is the lack of primary and secondary information on blue bonds. Thus, robust statistical analyses to contrast results were not possible.

Practical implications

Researchers and practising professionals can improve their understanding of how mezzanine debt, P3s and PF into an investment valuation model allows financing SIS using a non-conventional financial mechanism. The recommendations will benefit both the academia as well infrastructure industry in bridging the gap between design theory and practice.


Sustainability components have not been addressed explicitly or combined in the financing’s structuring. Therefore, the investment valuation model could be considered a novel methodology for decision making related to financing and investment of SIS.



The authors are grateful to Aguas Nacionales for their assistance during the preparation of the case study and especially to Mr Hernán Andrés Ramírez Ríos, former CEO, and his support was more than valuable. The authors really appreciate it. Any assumptions, conclusions, findings or recommendations expressed in this paper are those of the authors and do not necessarily reflect the views of Aguas Nacionales E.S.P. S.A. Finally, the authors thank the anonymous reviewers for their invaluable insights, constructive comments and direction that allowed improving the quality and comprehension of the paper. Likewise, the authors thank Dr Baabak Ashuri (Georgia Institute of Technology) for his extremely helpful comments to the first versions of this paper and Ignacio Vélez-Pareja (MSc) (Researcher and Consultant on Finance) for the rewarding talks about valuation. The authors are responsible for any error or omissions.


Gonzalez-Ruiz, J.D., Arboleda, A., Botero, S. and Rojo, J. (2019), "Investment valuation model for sustainable infrastructure systems: Mezzanine debt for water projects", Engineering, Construction and Architectural Management, Vol. 26 No. 5, pp. 850-884.



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Copyright © 2019, Emerald Publishing Limited

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