China’s State Grid won the Transco auction. Surprise. Surprise. What was interesting, I thought, is that Metro Pacific decided not to participate. I’m wondering if they smell a law suit; but I don’t know jack about this.
What I do know is that the numbers we looked at earlier are not reflective of what the bidder’s saw. Because the bid went for $3.95 billion, not the $4.5 billion I mentioned.
This is simple math. The following three assumptions drive a $4.5 billion price:
1. Transco business results in a $500 million annual EBITDA, roughly
2. $170 million in Capex is required over the next five years
3. The owner’s want to achieve an 18% return on equity
One – or more – of those assumptions are incorrect. Perhaps the expected EBITDA is less than $500 million; perhaps more than $170 million is required in Capex. But I’m betting (and remember, I don’t know jack) that the risk adjusted discount rate went way up above 18%. Was it, perhaps, the late breaking issues regarding Ibazeta and the pre-qualification process? The statements by certain Senators? We need to let this play out a little, first.