Hong Kong MTR to export its rail-property model to China
Operator is in talks with Foshan and Guangzhou on a link based on rail-and-property approach
Overseas rail projects will generate more revenue than MTR's domestic operations by 2020 as the city's sole rail operator gears up for international expansion.
On the mainland, most of the space above railway stations and depots is empty
MTR wants more overseas projects, especially on the mainland, where it is promoting its rail-and-property model as a solution to debt-laden railway businesses. While Shenzhen's Metro Line 4 is now the only railway that has adopted this model, MTR said it was discussing with the Foshan and Guangzhou governments the building of an inter-city link where building costs would be subsidised by developments along the route.
Lincoln Leong, MTR's deputy chief executive, said there were more potential projects in the western and coastal regions of the mainland.
As more mainland cities look to the property financing model as an alternative to heavily subsidised rail projects, fewer new rail projects in Hong Kong would use the model. That is because any new lines extending the old Kowloon-Canton Railway (KCR) network must stay in the hands of the government.
The Northern Link and the Tuen Mun-Tsuen Wan Link now in the middle of public consultation, for example, will be funded and owned by the government, with MTR merely acting as a franchise operator.
While franchise operations offer higher returns in percentage terms, they generate lower earnings than projects built and run by MTR. As the State Council is looking for more sustainable ways to finance rail development and Premier Li Keqiang told his cabinet last Wednesday that inter-city and suburban lines would be open to private investors, the mainland could be a source of growth for MTR.
But Leong said Hong Kong would remain MTR's "bread and butter" market for a long time.
"The ebitda [earnings before interest, tax, depreciation and amortisation] margin of our local rail-and-station commercial operations exceeds 50 per cent, while our overseas projects, usually awarded to us in the form of franchises, have a margin of 3 to 5 per cent," he said.