Why did china grossly overpay for a utility in brazil_ _ oilprice. com

Chinese state energy companies are huge by international standards. Gas numbers stove temperature Their government wants them to expand overseas and they seem indifferent to conventional standards of profitability. 9gag This makes them formidable competitors. Gas pedal lyrics And the fact that they can borrow from government owned banks at attractive interest rates lessen their competitive advantage.

The State Grid of China, for instance, has $466 billion in assets (yes, we checked that number to make sure we had the decimal in the right place). Electricity generation by source by state By comparison one of the U.S.’s largest utilities, Southern Company, has “only” $78 billion of assets. A gas is compressed at a constant pressure of China’s State Grid just made a bid to buy a controlling position in one of Brazil’s biggest electric companies, CPFL Energia, with the bulk of its assets in the industrial state of São Paulo.

The offer itself is not the big news. Electricity song This Chinese firm already owns transmission assets in Brazil. Gas utility austin Nor should it be news that a Latin American government facing economic woes would permit the sale of strategic utility assets to a Chinese state firm. Lafayette la gas prices After all, one of the key features of the ongoing Hinkley Point nuclear saga in the UK is their eagerness to attract Chinese (and French) capital to finance a hoped for resurgence of Britain’s nuclear power industry. Electricity laws physics But the CPFL bid differs from the UK venture in that CPFL is a well-financed company. Hp gas online booking It is a shareholder of CPFL that wants (or needs) to liquidate its investment.

To us the real story is the price China’s State Grid is offering to pay for these assets: a whopping 28 times estimated 2016 earnings and 3.1 times current book value. Gas in california This implies they are willing to accept a 3.6 percent after tax return on their investment. Gas jokes And this is a utility in a country with more than its fair share of economic weakness and government instability.

We can attempt to explain that steep purchase price several ways. Gas exchange in the lungs First, perhaps the Chinese are looking beyond the current downturn induced in part by weak commodity prices. C gastronomie Second, the government has told the state grid to invest abroad to cement trading relationships and perhaps favorably influence other relat-ed policies. Gas bubble disease As a commodity exporter, Brazil is a major trading partner of China’s. Is there a gas station near me Related: Bill Gates And Other Billionaires Backing A Nuclear Renaissance

But, again, how to understand that steep price? Two answers suggest themselves. Electricity prices over time First, the Chinese company is so large that almost no acquisition, no matter how unremunerative, could adversely influence its financials. Electricity outage san antonio Their recent bid would value CPFL at around $8 billion, an inconsequential 2 percent of State Grid’s assets. Electricity and circuits class 6 ppt Second, State Grid’s profitability is comparatively low (an average return on equity of 4.7 percent in 2013-2015 and a margin of 3 percent on sales) so earning slightly below that on a relatively modest investment scarcely matters.

It’s not that the managers of state-owned companies don’t understand the concept of a risk adjusted re-turn on a prospective investment. Electricity lessons 4th grade We believe they don’t care. Oil n gas prices They, or more precisely policymakers in Beijing, have other motivations that render profit maximization a secondary concern.

Given the other uncertainties they currently face (carbon restrictions, renewable inroads and the like), most electric utilities in the industrialized world are too preoccupied to compete for foreign acquisitions on this scale. Gastroenterologia o que trata In addition, the economic results of previous Latin American utility investment forays by U.S. Gas 4 less redding ca companies proved less than stellar. Gas pain left side Consequently these managements don’t care what the Chinese choose to pay for Brazilian utility assets and their shareholders are probably grateful at the lack of interest.

But times and economic circumstances change. Gaston y daniela State owned companies, not only the Chinese, are likely at some point to become more realistic about the underlying economic value of assets. P gasol Instead of fulfilling policy aims or making splashy trophy purchases, economic values may reassert themselves often at a financially inopportune moment. Gas 99 cents a litre This is often when the real bargains appear. Astrid y gaston lima reservations Related: Big Oil Ready To Start Spending Again

The proposed purchase of this type is like a Rorschach test for global electric utility managers and perhaps political leaders as well. Gas x dosage chewable Some will fear the loss of a potential growth opportunity in a business where demand is already flattening. Bp gas prices akron ohio Others may see the need to make even higher, economically foolish bids to compete. Austin electricity outage Still others may choose to become sellers themselves, unable to resist the allure of a seemingly irrational buyer.

We’ve written a number of times that electricity understood as a commodity is different. Electricity merit badge pamphlet In a way it is often at the very nexus of economic development and political stability. Gaz 67 for sale When this occurs to political figures, a purely commercial transaction can quickly become a matter of vital national importance. Gas delivery At this moment Brazil’s leaders face a host of domestic challenges including the upcoming Olympics. Electricity khan academy It would be only natural for them to be more than a bit distracted. A level physics electricity notes But electricity is different. Electricity vocabulary Let’s see if the government stays on the sidelines.