Bullet-Train Chief Pitches Share Sale as Taiwan Provides Bailout

A Taiwan High Speed Rail Corp. (THSRC) train

A Taiwan High Speed Rail Corp. (THSRC) train featuring Ming-dynasty artwork designs travels along a railway track in Kaohsiung, Taiwan. Source: Taiwan High Speed Rail Corp. via Bloomberg

  • Billion-dollar rescue from government set to breathe new life
  • Taiwan High Speed Rail to slash prices for off-peak travel

The operator of Taiwan’s $15 billion bullet-train project, which came dangerously close to insolvency earlier this year, says a solid profit outlook and creative branding campaign should help the company draw investors for a new share sale planned for next year.

Chairman Victor Liu, the driving force behind Taiwan High Speed Rail Corp.’s turnaround, says a nearly $1 billion government bailout will relieve the company’s outsized debt burden ahead of the share sale, while lower ticket prices and new branding initiatives will prop up revenue.

“Our stock won’t have any problem,” Liu said in an interview in Taipei. “We’re not just a transportation company.” High Speed Rail aims to play a bigger role in Taiwan’s tourism industry by providing a rapid tourist link to the island’s popular attractions, such as Sun Moon Lake, the chairman said.

Conceived in an era of late-1990s dot-com optimism, Taiwan’s high-speed rail was at one point the world’s costliest public-works project that is privately built and operated. It has since become Asia’s most indebted listed infrastructure company. Meanwhile, ridership has failed to reach forecasts and in the past three years more than 40 investors have sued the company for unpaid dividends.

Public Support

Bullet-train service began in 2007, using Japanese technology to provide a smooth ride along the island’s western coast. The service cut travel time by two-thirds, to 90 minutes, over the 345-kilometer (215-mile) stretch from Taipei to the southern port city of Kaohsiung. Train carriages are well-lit and meticulously cleaned between hauls. 

Sidney Chen, a Kaohsiung resident and regular passenger, ticked off the train’s virtues: “On time for passengers to be confident. Clean for passengers to relax and be comfortable.”

Earlier this year, the train system appeared to be teetering on the verge of bankruptcy or nationalization. In the end, Taiwan’s government approved a plan in July to pump taxpayer funds into the project via a NT$30 billion ($916 million) share placement that will allow the company to pay investors. The company will receive the money by mid-December.

Empty Seats

Still, the bullet train has struggled to fill seats. Before the line opened it was expected to carry 145,000 passengers a day, but as of last year it was averaging 132,000. One factor could be its pricing: The fare from Taipei to Kaohsiung is about $50, far more than a bus ticket or the conventional rail service, which cost about half as much. High Speed Rail posted a loss of NT$0.23 per share in the first half of the year.

Discounts for off-peak travel should help the company raise its load factor to as much as 64 percent in five or six years, from the current 59 percent, Liu said. The company introduced train cars this month designed with the help of the National Palace Museum, featuring Ming-dynasty artwork.

High Speed Rail shares closed 0.3 percent higher Tuesday at NT$4.02 on Taiwan’s Emerging Stock Board, a preparatory market for companies that have yet to list on either of the island’s two larger bourses. The stock is up 1.5 percent this year, compared with a 9.5 percent decline in the benchmark Taiex index.

Lin Chung-yi, vice president of China Steel Corp., which owns a 9.3 percent stake in the company as of Sept. 30, said the new branding initiatives should allow the operator to cooperate more closely with Taiwan’s tourism industry.

High Speed Rail is looking to list its shares on the Taiwan Stock Exchange within a year, and should attract investors with an annual dividend yield projected at 4.9 percent, Liu said. Before the government boosts its stake, the company will cancel about 60 percent of its existing shares, raising its book value to NT$3.26 a share from NT$1.31, according to an exchange statement Oct. 30.

“The company is very stable, with steady cash flow,” Michael On, president of Taipei-based Beyond Asset Management Co., said by phone. “It’s easy to value it.”

State Control

Liu said the operator expects to post a profit next year after the government agreed to double the bullet-train concession to 70 years, reducing an annual depreciation expense that was crippling the company’s finances. The operator is also working to negotiate better terms on its borrowing, extending some loan repayments after having bargained down its interest rates to an average 2.2 percent, from as much as 8 percent, Liu said.

Lin of China Steel, which was among the investors who sued the company, said the company’s finances should improve a lot after the bailout. The steelmaker lost their case to claim the unpaid dividends in court but its shares have since been converted to common stock.

The reform plan and bailout may have averted immediate disaster, but going under state control presents its own risks. The state’s direct and indirect stake is expected to rise to 64 percent after the December placement, from 22 percent now. Government-assigned directors will dominate the board. The bullet train is effectively being nationalized.

“The fact that we’ll be state-owned yet operated by the private sector is a new challenge,” Liu said. “The benefit is that the government will back our finances. The drawback: whether we can maintain the spirit of being private, if incentives to employees will be affected like promotions and salaries.”

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