MTR’s small shareholders should reject proposal to fund overbudget high-speed rail
Albert Cheng says the case for a link to the mainland grid has weakened considerably in the wake of the MTR’s deal with the government to finance its overbudget and much-delayed line
Small shareholders of the MTR Corporation should reject the proposed financial package for funding the cost overrun of the problematic express rail link, or they might end up in a hole of financial liability.
Under the new agreement, the government will ask the Legislative Council to approve HK$19.6 billion in extra funding by February. The same amount will eventually be recouped through a special dividend to be paid by the MTR Corp. It has pledged to pay HK$25.76 billion in dividends at the rate of HK$4.40 per share – four times last year’s payout – in two stages. The government, which holds 76 per cent of MTR shares, will get HK$19.5 billion, while other shareholders will pocket an unexpected bonanza of HK$6.2 billion. This is obviously meant to be a sweetener for small shareholders to accept the deal.
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MTR shareholders must not fall into this trap. Behind the immediate payout of dividends is a much bigger long-term potential financial liability. The MTR Corp has agreed to cap the total cost of the project at HK$84.42 billion and will have to dig into its own pocket for anything over that ceiling.
Both the government and the MTR Corp have stressed that the special dividends are not meant to offset the amount to be approved by the Legco Finance Committee. This is sheer hypocrisy. The two sums are, of course, related. It is highly irregular for a listed company to borrow or raise money just to enable it to pay special dividends to shareholders.
Behind the immediate payout of dividends is a much bigger long-term potential financial liability
The MTR Corp’s project performance has been so poor that the government has engaged legal experts to look into possible compensation. This is on top of the pile of pending claims from contractors, who have complained about changes in designs and timetables.