Toll roads sag under debt of 760b yuan

Twelve provinces are faced with debt totalling 759.3 billion yuan (HK$920.8 billion) they have incurred from building toll roads, and money from fees paid by drivers could be trickling in too slowly in most regions to pay off the amount, according to a mainland media report.

Local authorities are the main shareholders in toll roads, and analysts caution that the impact of the debts on government finances needs to be addressed.

Faced with persistent public complaints about high tolls, authorities of the 12 provincial-level transportation departments released reports about their revenue and debt, according to The Beijing News. The newspaper published the figures yesterday from all 12 - Beijing, Shanghai, Tianjin, Chongqing, Anhui, Guizhou, Hunan, Jiangsu, Liaoning, Ningxia, Shandong and Yunnan.

Beijing is the only one making money, generating 387 million yuan in total profit, according to the published figures.

The other 11 are losing money or breaking even. Seven have each incurred losses of at least 1 billion yuan.

Every provincial-level report, which includes all four municipalities, revealed more than 10 billion yuan of outstanding debt incurred from the roads. The debt leader is Jiangsu, on the Yangtze River Delta, which owes 133.8 billion yuan.

Jiangsu is followed by Yunnan, with 111.5 billion yuan in debt.

But the size of the payments was not insurmountable, analysts said.

'The debt is manageable,' said Guotai Junan Securities analyst Gary Wong. The toll operators would need about 10 years to repay their debt, he estimated.

In most cases, toll road operators sign 25-year operating contracts with local governments. Since these toll roads had more than 10 years left in their current lifespan, the operators would be able to pay off their debt, Wong said.

Nomura analyst Jim Wong, who put the payment period at nine years, said: 'A debt-to-revenue ratio of 7.6 times doesn't seem unreasonable.'

Most toll road operators have local governments as their controlling shareholders, while their debt is owed mainly to banks.

But while the amount outstanding might be manageable, it is feared that the payback time could linger and create a persistent burden for local governments, which are already swamped with other debts.

Lu Zhengwei, chief economist of the Industrial Bank, said underused roads that local governments had built would see more traffic in the coming year as mainlanders increasingly purchased cars.

The real problem, he said, was in the management of local government debt.

Jim Wong said there was a widespread public belief that many toll road rates were too high. 'There is a gap between perception and reality. In reality, returns on toll roads are getting so small that companies are not investing in new toll roads.'

The rates on most roads have not increased for years, while labour and raw material costs have climbed, eroding profit margins for operators.

'That is why the investment community is not interested in new toll road projects.'