Fitch lauds rail merger but warns of obstacles
Credit rating agency Fitch Ratings backs a government plan to combine Hong Kong's two rail firms into one giant but says the move could bring teething issues.
The MTR Corp, Kowloon-Canton Railway Corp merger, which joins two of the biggest corporate debt issuers in Asia, was necessary and positive for Hong Kong's future rail network planning, Fitch said.
The rail firms are locked in closed-door discussions on merger options due for submission to the government at the end of August.
'It is not easy to strike a balance among the many interested parties,' Fitch said yesterday. 'It is fundamentally a matter of balancing public policy issues with various commercial and financial considerations.'
The rating agency pointed out a number of near- and medium-term issues had to be addressed, including obtaining approval from MTRC minority shareholders; the government's articulation of clear transport-fare, property and housing policies; management commitment to a merger; system and network integration; and managing labour relations.
The government owns all of KCRC and 76 per cent of MTRC.
Fitch believed a merger would bring positives, such as cutting the government's burden in rail firms' capital expenditure, especially as West Rail was not self-sustaining.
A merger would also remove growing overlap of the MTRC and KCRC's service areas and hence cut unnecessary competition, it added.
An enlarged rail entity would strengthen and diversify revenue streams, helpful in fund-raising exercises, Fitch believed.
The firms have AA-minus long-term foreign currency ratings and AA-plus long-term local currency ratings, with MTRC's outlook stable and KCRC's negative.
Fitch warned ratings were subject to revision according to continuous policy, regulatory and financial support from the government and the actual terms of the merger.