Wednesday, 3 March 2010

Auditor raises alarm over Beijing-Shanghai rail link

The Beijing-Shanghai High Speed Railway, which wants to raise up to 50 billion yuan in one of the world’s biggest initial public offerings this year and bring in strategic investors, has been hit by findings of financial irregularities by the national auditor.

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Guanyu 道 said...

Auditor raises alarm over Beijing-Shanghai rail link

Toh Han Shih
03 March 2010

The Beijing-Shanghai High Speed Railway, which wants to raise up to 50 billion yuan in one of the world’s biggest initial public offerings this year and bring in strategic investors, has been hit by findings of financial irregularities by the national auditor.

The National Audit Office found 520 million yuan (HK$590 million) worth of irregular receipts at Beijing-Shanghai High Speed Railway, the joint stock company formed in January 2008 to operate the 350km/h, 1,318 kilometre railway between the two cities, the audit office announced on its website. Executives linked to the irregular receipts had been “handed over to the law”, the audit office said.

The company wants to raise between 30 billion and 50 billion yuan from the IPO this year, China Daily reported. This would probably make it one of the world’s largest IPOs this year, given that last year’s top global IPOs ranged from US$8.07 billion to US$3.9 billion.

Because the high-speed railway will not start operating until 2012, other assets including existing railway lines between the two cities will be injected into the listing entity. Without those assets investors may have to wait several years before the company yields a return, said Geoffrey Cheng, director of Asia equity research at Daiwa Securities.

A 4.54 per cent a stake in Beijing-Shanghai High Speed Railway has also been put up for tender for 6 billion yuan to strategic investors via the China Beijing Equity Exchange, according to the exchange’s website. The stake was offered by China Railway Investment Corporation (CRIC), a Ministry of Railways company that owns 56.27 per cent of Beijing-Shanghai High Speed Railway.

“This can be seen as a showcase for the coming of age of China’s high-speed railways, a sign that railways in China can be profitable,” said Evan Auyang, a former infrastructure consultant at McKinsey and currently the deputy managing director of Kowloon Motor Bus Company. “The Ministry of Railways is looking for private funding to finance the accelerated building of high-speed railways.”

A Shanghai analyst said the Ministry of Railways wanted to privatise its assets because it was under severe financial pressure. “High-speed railway costs a lot, so it needs money,” said the analyst.

China’s aggressive plan to build 18,000 kilometres of high-speed railway will raise the Ministry of Railway’s total debt to 3 trillion yuan by 2020, with a liability to asset ratio exceeding 70 per cent, Xinhua reported yesterday.

“This year, the Ministry of Railways will accelerate reform of the railway financing system and accelerate the listing of joint-stock railway companies,” the ministry’s website said.

In a recent speech, Railways Minister Liu Zhijun said 122.4 billion yuan had been invested in the Beijing-Shanghai high-speed railway, 56.2 per cent of the total planned investment of 218 billion yuan.

The Beijing-Shanghai high-speed railway would be the most profitable one in China, as it would be heavily used by business travellers who have the deep pockets to pay high ticket prices, the Shanghai analyst said.