Shenzhen Investment pays HK$1.2b for part of toll road
Shenzhen Investment, which is expanding beyond property development to secure less volatile earnings, has sealed its first direct toll-road investment in a HK$1.2 billion deal as it moves to make infrastructure a core business.
Shenzhen Investment, the Hong Kong-listed investment arm of the Shenzhen municipal government, is to buy a 91 per cent interest in the 3km section of the national thoroughfare between Guangzhou and Er Lian Hao Te in Inner Mongolia. The company will have the right to operate the toll road, which is due to open in three weeks, for the next 31 years.
Funding for the purchase would come largely from internal cash resources and proceeds from divesting non-core assets worth HK$1.1 billion, chief operating officer and executive director Joe Zhang Huaqiao said.
Shenzhen Investment, whose interests include cable television, manufacturing and the Mawan power plant in Shenzhen, is turning to infrastructure holdings as property development is being targeted by taxes and other government measures to cool an overheated market.
The Jingdong Expressway deal marked the first of a string of infrastructure acquisitions that would include three Hubei toll bridges and might be followed eventually by two southern China toll-road projects - the Guanghe and Huiao expressways, under construction at a combined cost of HK$10 billion - from the company's state-owned parent, chairman Hu Aimin said.
'Infrastructure will become one of the two core businesses after property development,' Mr Hu said yesterday. 'They will complement each other well.'
Although capital-intensive and involving longer payback periods, investments in toll roads and bridges generated steadier returns and cash inflows, he said.
Future income from infrastructure projects would offset volatile earnings from property development.
Shenzhen Investment, which holds a 24.3 per cent interest in Hong Kong-listed expressway operator Road King Infrastructure, will pay vendor Xiamen Dongfang Jinglong Investment HK$636.42 million for the 91 per cent stake in Jingdong Expressway. It will also pay HK$567.98 million to Huayin Traffic, the holding company of the stake, as a capital reserve which will be owned by the buyer upon completion of the deal.
Xiamen Dongfang will return HK$193.1 million to Shenzhen Investment if toll income fails to meet the forecast of 140 million yuan for the 12 months to January 31, 2008.
Mr Zhang, who cited a consultant's forecast of a 14.7 per cent internal rate of return on the Jingdong project, said the firm would speed up the sale of non-core assets. 'We are not happy with the pace of selling non-core assets,' he said. 'The timeframe of the sales of the Mawan power plant stake and cable television unit will be brought forward to the end of this year.'
He promised not to issue new shares in the next 12 months and maintain a dividend payout ratio at above 50 per cent of the group's earnings.
Shenzhen Investment shares closed 1.3 per cent higher at HK$2.33.