West Australia's estimate of $11 billion for the proceeds of a Western Power initial public offering has brought back memories of the $16 billion price-tag bandied around by NSW Premier Mike Baird for Ausgrid.
But as was the case for that NSW poles & wires asset, the composition of Western Power's headline number, which was given by WA Premier Colin Barnett on Wednesday, needs some closer consideration.
Key to the calculation is the value of Western Power's assets for regulatory purposes at $10.8 billion.
The regulated asset base (RAB) is the value of Western Power's assets as determined by the Australian Energy Regulator, and is the basis on which the company sets its own charges to customers. As listed peers AusNet and Spark Infrastructure trade at somewhere between 1.35 times and 1.4 times RAB, then a conservative multiple of 1.3 times RAB could be safely applied to Western Power. [Bear in mind that the multiples of 1.4 times and 1.6 times for Ausgrid and Transgrid respectively resulted from trade sale processes which typically achieve a premium price compared to an IPO].
That gives Western Power an enterprise value on a 100 per cent basis of about $14 billion, with only 50.1 per cent of the company to be sold in the IPO which still hinges on Barnett being victorious in the March election.
With about $9 billion of debt able to be put into 100 per cent of Western Power [rating agencies typically aim for an 85 per cent debt to RAB ratio], the total equity value is $5 billion, pointing to an IPO of just over $2.5 billion.
Adding back the $9 billion of debt, brings estimated gross proceeds to Barnett's coffers of $11.5 billion.
