The Hong Kong government agreed to bear the costs for MTR Corp’s railway project linking the city to mainland China more than a year after a cost blowout led to inquiries by lawmakers and the departure of senior executives at the train operator.
In return for the government paying for the HKD84.4 billion (USD11 billion) project, which connects the southern Chinese cities of Guangzhou and Shenzhen, MTR said yesterday it would pay a special dividend to its shareholders. The government, as a majority owner of the train operator, will get HK$19.51 billion in the payout, MTR said in a statement to the Hong Kong stock exchange.
MTR will bear any additional cost if it exceeds the budget for the project, which is expected to be operational in the third quarter of 2018. The new budget is slightly lower than an earlier forecast of HK$85.3 billion, MTR said.
The agreement yesterday brings to an end wrangling between the government and MTR over who should take responsibility for the delay and budget blowout, with former Chief Executive Officer Jay Walder departing one year ahead of his contract expiry. The rail was initially scheduled to be completed this year for HK$65 billion.
The company believes “the agreement provides a viable and pragmatic solution to take forward and complete the express rail link project,” MTR said in the statement.
The rail link is 75 percent completed, Hong Kong Secretary for Transport Anthony Cheung said at a briefing in the city. The government reserves the right to take legal action against MTR if it isn’t satisfied with the implementation of the project and for any cost overruns, he said.
MTR will pay out a special dividend of HK$4.40 a share, with other stakeholders getting HK$6.25 billion in total. Hong Kong’s government owned 75.7 percent of MTR as of Oct. 31, the train operator said.
The express rail link will cut travel time between the mainland and Hong Kong to help foster trade and services, which will bolster the city’s long-term competitiveness as a gateway to China, MTR said. Hong Kong lawmakers in January 2010 approved funding for the high-speed rail line, whose completion had been delayed at least twice.
Shares of MTR, which were suspended from trading yesterday, fell 1.2 percent to close at HK$36 on Friday. Trading will resume at 9 a.m. today.
MTR posted net income of HK$8.2 billion in the six months ended in June, 3.5 percent more than a year earlier, helped by a sale of land. Kyunghee Park and Alfred Liu, Bloomberg
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