MTR Corp. Accepts Govt Funding of Rail Link to South China

  • November agreement would see city take over $11b project
  • Project could halt unless govt funds it this month: Chairman

Hong Kong’s MTR Corp. has agreed to a plan for the city government to take over financing of an express rail link to southern China. Now the government just has to come up with the money.

MTR shareholders passed a resolution Monday approving a November agreement for the government to pay for MTR’s HK$84.4 billion ($11 billion) project linking the city to neighboring Guangzhou and Shenzhen. MTR will bear any additional expenses if the rail link, expected to be operational in the third quarter of 2018, goes over budget.

The Hong Kong government owns 75.7 percent of MTR, according to data compiled by Bloomberg. MTR will pay a special dividend of HK$4.40 per share as part of the agreement, which would provide a payout of HK$19.51 billion for the government.

It’s now up to lawmakers to approve the agreement and find the funds for it, MTR Chairman Frederick Ma told reporters after Monday’s general meeting. The project could come to a stop if funding isn’t approved by February, he said.

Over Budget

MTR has faced criticism for budget overruns and missed completion targets on the project, and saw its chief executive officer leave one year earlier than planned. Some lawmakers have called for the rail link to be scrapped as costs swelled from the HK$65 billion estimated earlier, and as it faced repeated delays.

MTR Chief Executive Officer Lincoln Leong told reporters Monday that the project was 76 percent complete at the end of last year, and that he’s confident it can be finished within the HK$84.4 billion budget. The link would connect to the Beijing-Guangzhou high-speed rail.

MTR shares, which were suspended from trading pending Monday’s vote, will resume trading Tuesday, the company said. The shares are down 8.6 percent so far this year, compared to the 11 percent decline in the benchmark Hang Seng Index.

In December, Hong Kong’s government said the city could face a HK$75.6 billion bill if the rail link was abandoned, according to a document to lawmakers from the Transport and Housing Bureau. The government will need to complete the remainder of the project, including the terminus and surrounding roads, if construction stops due to pressure from some lawmakers, it said.

Forecasts for the project’s economic return have been cut to 4 percent, from the 6 percent estimated in 2009, the government paper said. The government cited higher construction costs and slower economic and population growth in the Pearl River Delta region as reasons for the decline.

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