High-speed railway can proceed on new financial track
Updated: 2015-12-02 07:43
By Peter Liang(HK Edition)
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The banner headlines in some Chinese-language newspapers declaring that taxpayers are asked to pay for cost overruns in building the high-speed railway to Guangzhou are misleading. The fact is, as the government has taken great pains in explaining, it is an arrangement that has been struck after taking into account all legal and practical factors.
As is widely known, delays in the construction of the mega project were caused by multiple reasons - some of which, such as bad weather and a shortage of workers, were beyond anyone's control.
To be sure, there have been allegations of mismanagement of the project on the part of the MTR Corporation (MTRC), prompting the government to reiterate that it reserves the right to claim compensation in court after the project is completed.
But abandoning the project at this stage could lead to huge financial losses, as well as being a serious blow to the credibility of the government and the MTRC. Everybody agreed that a solution had to be found.
The solution proposed by the MTRC and agreed to by the government earlier this week is apparently the best that can be offered. In essence, the government is only required to bear the cost overruns. The MTRC has pledged to reimburse the government - which is also its majority shareholder - in full at a later date in the form of a dividend payout, which will also be paid to minority shareholders at the same rate.
The proposal has to be ratified by the Legislative Council and the minority shareholders of the MTRC. While there is little reason to see why legislators should reject the proposal, the inclination of the minority shareholders of the MTRC is less certain because some of them may feel concerned about the financing of the dividend payout by fresh borrowings. Not only is this a highly unusual business practice, but the increase in debt could affect the corporation's future development and earnings.
So, it seems the sensible thing to do is for the MTRC to hire an independent financial adviser to talk to minority shareholders about this proposal. This may be just a formality. But, in these circumstances, the corporation needs not only to act fairly but also to be seen to be fair to all shareholders.
(HK Edition 12/02/2015 page8)