A private company announced on Aug 22 that it had acquired 100 percent of the shares in a state-owned railway company for nearly one billion yuan (125 million U.S. dollars), after taking over the State's 84 percent share in the 62-km railway.
This is the first major private capital purchase of a state-owned railway company in China. At the ceremony held in Guangzhou, capital of South China's Guangdong Province, Cheng Qingbo, president of the Shenzhen Zhongji Industrial Company, the investor, said that it was an ideal deal and the company expected to retrieve its investment in ten years.
The deal is considered a breakthrough for the policy issued by the central government last July encouraging non-public capital to take part in railway construction and reconstruction. The Chunluo railway connecting Yangchun and Luoding cities in Guangdong was jointly owned by state-owned Luoding Railway Co., an unprofitable coal carrier, and the China railway construction. The Luoding Railway Co. held 84 percent of the shares in the Chunluo railway. The government-funded Luoding Yongsheng Assets Management Company announced the auction of Luoding Railway Co. at the Guangzhou Enterprises Mergers & Acquisitions Services last month.
According to Cheng, Zhongji will take over the total debt of the Luoding Railway Co., which amounts to 793.66 million yuan. Zhongji's first capital outlay is expected to be 40 million yuan, and the total investment will be nearly one billion yuan. The Chunluo railway, brought into operation in 2000, has been handicapped by low freight transport volumes which are not even one-fifth of capacity.
Cheng is confident about future returns. When the railway is extended 76 kilometers and linked with the national railway grid, then "the profit margin will be large", he said. The Zhongji Company will invest 1.5 billion yuan to carry out the extension plan.
Established in 1996, the Shenzhen Zhongji Industrial Company has been engaged in the operation of toll roads and bridges. At the end of last year, the company reported total assets of 8.13 billion yuan and a profit volume of 440 million yuan, which "is sufficient to support the construction plan for the Chunluo railway", said Cheng.
According to Cheng, 65 percent of the investment will come from bank loans, for which Zhongji has signed a preliminary agreement with a national commercial bank. Construction is expected to be completed in three years.
"Non-public capital participation in railway construction and operation through acquisition will relieve local financing burdens and offer gains to investors", said Fu Dunan, general manager of the Luoding Yongsheng Assets Management Company.
According to Cheng, policy support from both local and central governments is a key factor in encouraging private companies to take over state-owned railways.
China is opening up traditional monopoly sectors such as power, telecommunications, railways, civil aviation and petroleum to private investors. Non-public capital began to enter China's railway freight sector at the end of the 1990s. China's first railway involving non-public shares emerged last April.
Liang Renqiu, a Luoding government official acquainted with the whole takeover process, said that more detailed policies on construction, operation and income distribution will provide the assurances needed to see more non-public capital flow into the railway industry.
Source:佚名