Beijing-Shanghai High-Speed Rail on Track for $4.4 Billion IPO
The operator of a high-speed rail line connecting China’s two leading cities of Beijing and Shanghai has priced its landmark IPO, in a deal that could become one of the largest offerings of 2020 as the national rail operator looks to become more commercial.
Beijing-Shanghai High-Speed Railway Co. Ltd. announced its IPO will raise about 30.7 billion yuan ($4.4 billion), after it set its price at 4.88 yuan per share, according to a Friday announcement to the Shanghai Stock Exchange. The deal involving sale of about 6.3 billion shares, or 12.8% of its total, was priced to give the company a price-to-earnings ratio of about 23.
The 23 price-to-earnings level is considered an upper “red line” set by the securities regulator, which companies aren’t permitted to cross at the time of their listing. As a result, high-growth companies are often priced at artificially low levels and can experience big gains in their initial trading days.
The listing would be one of the largest in recent years for the Chinese mainland’s stock markets, coming behind Postal Savings Bank of China Co.’s $4.8 billion listing in December.
Beijing-Shanghai High-Speed Railway is a unit of China State Railway Group Co. Ltd. (China Railway), operator of the nation’s vast rail network that includes its 35,000 kilometer (21,750 miles) high-speed rail system whose trains can travel at up to 350 kilometers per hour. The group was once part of China’s rail ministry, whose breakup in 2013 saw China Railway spun off as a commercial entity.
The buildup of a national high-speed rail network has left China Railway with a heavy debt burden in the hundreds of billions of dollars, which the company is now trying to pay down through efforts like the Beijing-Shanghai line IPO. The 1,318-kilometer line is one of China Railway’s most profitable businesses, and has hauled just over 1 billion passengers since launching service in 2011. It has posted average annual passenger volume growth of 20.4% since its inception.
The company’s revenue has grown steadily in recent years, including by 5.4% in 2018 to 31.2 billion yuan. Profit attributable to the parent company that year rose 13.2% to 10.2 billion yuan. The company said it expects to report a profit of 11 billion yuan to 12 billion yuan this year, which would represent growth of 7.4% to 17.1%.
The company plans to use the funds from the listing to acquire 65% of a sister firm that operates several of China Railway’s lines in eastern Anhui province. That purchase was expected to cost 50 billion yuan, meaning Beijing-Shanghai High Speed Railway will need to find other sources for the remaining 19.3 billion yuan after using funds from the IPO.
The IPO is part of China Railway’s broader plan to overhaul its structure and monetize some of its assets as it seeks to become more commercial, including paying down its debt. At the rail operator’s annual work meeting on Thursday, Chairman Lu Dongfu emphasized that the company will continue similar efforts for some of its other units, which includes a goal of making more eventual IPOs.
Contact reporter Yang Ge (firstname.lastname@example.org; twitter: @youngchinabiz)
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