Guangzhou Investment's plan to spin off its infrastructure business made a slash on the market yesterday. The company's share price edged up 12.5 cents or 6.17 per cent to close at $2.15 as one of the day's most heavily traded stocks. The company is the latest to spin off infrastructure projects in China, following similar moves by New World Infrastructure, Road King Infrastructure and Cheung Kong Infrastructure. Analysts welcomed the news, saying it helped increase the company's assets and made the counter more attractive. Guangzhou Investment, the listed arm of the Guangzhou government, is close to buying controlling stakes in parts of the Guangzhou-Shenzhen Highway and Guangzhou-Shantou Highway to enhance its portfolio. The company has a 20 per cent stake in the 16-kilometre Humen toll bridge and a 55 per cent stake in four toll roads in Xinfeng County in northern Guangdong. Executive director Sophia Yan Yuk-fung said the company had made inquiries at the Hong Kong stock exchange about a possible spin-off of its infrastructure business, but had not yet filed a listing application. The prospective listing candidate would comprise the existing toll bridge and toll roads plus a few new projects, Ms Yan said. She said it was likely the company would buy more than 50 per cent of the interest in the Guangzhou sections of the Guangzhou-Shenzhen Highway and Guangzhou-Shantou Highway. The 20 km section of the Guangzhou-Shenzhen highway had traffic flow of 3.2 million vehicles last year and the 70 km Guangzhou-Shantou highway had 6.8 million vehicles in the same period. The average toll fee for the two highways was seven yuan (about HK$6.51) per vehicle and the toll may be increased this year. The two projects, now under valuation, are expected to be financed by bank loans and internal resources to avoid diluting its earnings per share. They are predicted to yield an internal rate of return of 25 per cent or more. According to estimates announced by the company, the Xinfeng roads will provide 18 million yuan of revenue this year and no less than 21.7 million yuan next year. Scheduled to open in October, the Humen Bridge, which links Dongguan and Panyu in Guangdong, is estimated to have revenue of 50 million yuan next year. The company is keen to have the listing completed as soon as possible, although no timetable has been set. Analysts said the attractiveness of the offering would very much depend on its pricing and the quality of the road projects to be included in the listing portfolio. The spin-off of the infrastructure business was the first step towards the company's separately floating other businesses such as cement manufacturing. ING Barings' investment analyst Chong Leong said: 'The sooner the infrastructure business is spun off from the company the better. The company has a substantial cash need and the spin-off will allow it to recoup part of its investment while at the same time its assets will be enhanced.' The timing was right as infrastructure stocks and red chips were very hot these days, he said.
