CROSS Harbour Tunnel Co has announced a one-for-two rights issue to raise $830.4 million - its first new shares in nearly 20 years, The historic fund-raising move is aimed to pay its share of the $7.5 billion Western Harbour Crossing project. It comes with a warning from directors that the company's long-standing policy of paying 85 per cent of annual profits as dividends will be suspended until about 2000, when tolls from the new tunnel come on line. The issue is conditional on a contract being signed by August 31 to build the tunnel, which will link Sai Ying Pun with the West Kowloon Reclamation. The issue, at a theoretical discount of 25.8 per cent, was announced with interim financial results which show profits rising 4.9 per cent to $112.4 million. The rights price is $13 a share. Last night's close was $20.10, and the theoretical ex-rights and ex-dividends price was $17.51. The company has a 37 per cent share in the consortium which is the sole bidder for the controversial 30-year franchise to finance, build and operate the new tunnel. Its share of the building cost was estimated yesterday at $922 million. Director Quinn Law Yee-kwan said the difference between the cost and the rights' proceeds would be met from reserves. He said the issue price discount was normal, given the size of the issue, and was set after advice from underwriter Schroders Asia. ''If you go back to other transactions in the past year you will discover some were done at 45 per cent,'' he said. ''We believe the discount reflects the market situation.'' Directors said the alternative of loan finance ''would materially alter the risk profile of the company and may leave it inappropriately highly geared''. The placement was expected since it emerged that the tunnel consortium - which includes CITIC Pacific, CITIC Hong Kong, Kerry Holdings and China Merchants Holdings (Hong Kong) - was the sole bidder for the contract. The company said it expected the contract to be awarded on about August 25, but even if the contract were not formally awarded, the rights issue would proceed if the company's directors believed it would be awarded within ''a reasonable period''. Wharf (Holdings), which controls the company and owns 24.8 per cent of the shares, has agreed to take up its full share of the issue. For the six months to June 30, turnover, mostly from toll fees, rose 69.5 per cent to $335.3 million. However, this was inflated by turnover from the Hong Kong School of Motoring, which was included as a subsidiary rather than an associate after the company increased it stake in August last year. The harbour crossing contract has been dogged by allegations that the Government had been too generous in allowing the consortium to set tolls. The final deal retains the rate of return between 15 and 18.5 per cent, which is expected to ensure a good reception from investors. The company warned that the drain of constructing the new tunnel would cut future dividends by 15 to 20 per cent from the traditional level. However, the alternative was for the company to almost disappear when the franchise on its existing tunnel expired in 1999, 30 years after being awarded. The company said its second quarterly dividend would be unchanged at 33.5 cents a share. Earnings per share was put at 89 cents, against 85 cents 12 months ago.
