High-speed railway firm to raise $5b

The operator of the Beijing-Shanghai high-speed railway started its initial public offering on Wednesday, a move that will boost the opening-up and marketization of State-owned enterprises, industry insiders said.

After receiving the IPO approval from China Securities Regulatory Commission on Friday, Beijing-Shanghai High-Speed Railway Co Ltd, a unit of the State-owned China Railway Corp, plans to sell 6.3 billion new shares on Shanghai Stock Exchange, or 12.8 percent of its enlarged capital, according to its prospectus.

The company submitted its application on Oct 22. Industry experts estimated that the financing of the Beijing-Shanghai high-speed rail line operator will exceed 35 billion yuan ($5 billion), making it one of the largest IPOs in years.

The company's prospectus said it plans to acquire a majority 65.08 percent stake in the Anhui branch of the Beijing-Fuzhou High-speed Railway. It will also proceed with the mergers and acquisitions of companies in the same industry to better connect the other key lines between Beijing and Shanghai.

Sun Zhang, a professor at the Institute of Rail Transit of Tongji University, said the listing of the Beijing-Shanghai high-speed rail line operator will help to introduce private capital and advance the mixed-ownership reform of SOEs.

Upon its successful debut on the stock market, the company can adopt methods such as a debt-equity swap to lower the liability rate of China Railway Corp, he said.

As the most profitable rail line in China, the Beijing-Shanghai High-Speed Railway reported a sales revenue of 25 billion yuan for the first three quarters of this year, with the net profit amounting to 9.52 billion yuan. On that basis, the daily net profit of the rail operator is expected to be as high as 34.87 million yuan.

The profitability of the line operator is even more impressive when it comes to the fact that the company has only 67 employees. Considering its net profit of 10.25 billion yuan in 2018, the net profit generated by each employee may top as much as 153 million yuan. The asset managed per capita amounted to over 2.79 billion yuan by the end of September.

But that small head count and large asset size raised concerns from the CSRC.

In feedback provided on Nov 4, the CSRC questioned its prime operation and asked for an explanation to define the issuer as an asset management company or a high-speed train passenger transport service provider.

In a reply provided a week later, the company explained that the prime operation of Beijing-Shanghai High-Speed Railway Co is providing high-speed train transportation services.

"It does not have any asset management businesses, nor income from asset management activities," the reply said.

Professional service provider E&Y predicted in its latest report that up to 200 companies will have completed their IPO at the A-share market by the end of this year, up 90 percent from a year ago. The total financing is expected to reach 252.8 billion yuan, up 82 percent year-on-year.

Statistics from Wind Info showed that the total IPO financing recorded at the A-share market had reached over 248.3 billion yuan by Dec 21, having hit a record high and the loftiest since 2012.

Deloitte forecasts in its latest survey that between 140 and 170 companies will be listed on the main board, SME board and ChiNext board in 2020. The total financing will range between 180 billion yuan and 220 billion yuan. The STAR Market in Shanghai can attract up to 150 IPOs, with the financing raised likely reaching 160 billion yuan.