Others News
- Toll-road firms may acquire good assets
Date: 23-Oct-2007 Sources: (Shenzhen Daily)
MILLIONS of Chinese are hitting the road in new vehicles every year. But, so far, that hasn't translated into a boom for many of the nation's expressway operators, which have been plagued by rising construction costs and mounting debt.
But these enterprises' woes stand to benefit publicly traded toll-road companies listed in Hong Kong and the mainland that have been earning healthy profits and are poised to acquire some of the best-performing government-owned highway assets.
'If debt burdens get too large, government-run parents will really be forced to divest assets to the listed companies,'said Jason Baverstock, an analyst at Credit Suisse in Hong Kong. 'This will allow listed companies to ensure long-term growth and provide parent companies with the funds to meet heavy ongoing investment in expressway construction.'
Baverstock's top picks include Shenzhen Expressway, which runs highways around Shenzhen, Zhejiang Expressway, whose roads connect Shanghai to cities farther south and Hopewell Highway Infrastructure Ltd., which operates toll roads in Guangdong. Shares of all three trade in Hong Kong.
During the summer, Baverstock and his colleagues crunched the numbers available on China's toll-road sector, including the publicly traded companies as well as the provincial-government enterprises that still run most of the country's growing network of expressways.
According to their calculations, the overall toll-road system, already the world's largest, is running at a loss. China's provinces have followed a model of financing road construction with debt that is repaid with toll receipts. But toll revenue hasn't met expectations on many projects.
That means, they argue, that government road operators may need to sell off parts of their portfolios to the less indebted, publicly traded companies in order to keep expanding. And those companies are likely to have their pick of the best performing roadways.
Analysts say that the government is likely to lift a temporary ban on the sale of government-invested roadways by the end of this year, opening the way for a new round of acquisitions. Song Shaobao, an analyst at Southwest Securities in Beijing, said he expects asset acquisitions by listed firms to have policy support.
This is critical to the future performance of the publicly traded companies, many of which are the listed arms of parent firms controlled by provincial-government authorities. Without new roads, the companies' growth will slow, as traffic levels off and concession periods, usually of 25 years, start to expire.
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