MTR Corporation’s (00066.HK) incoming chairman Frederick Ma Si-hang has defended the railway group’s offer of a special dividend to the government in return for fresh funding assistance for the Hong Kong-Guangzhou high-speed rail project.
Ma, who will take over as MTR’s chairman from Jan. 1, said the proposed payout will boost return on equity by one percentage point to 8 percent from the end of June, the Hong Kong Economic Journal reported.
The gearing ratio, meanwhile, is seeing rising to 29 percent from 9 percent.
Such ratio would still mean a low level, he said, adding that the credit rating of the railway firm is unlikely to be affected.
The comments came after MTR came up with a revised figure of HK$84.42 billion for the high-speed rail project and asked the government for additional funding worth about HK$19.5 billion.
To help the administration secure approval from lawmakers for the fresh funding assistance, the rail company said it will pay back HK$19.51 billion to the government later through a special dividend.
Following the latest news, Citigroup analysts have said in a note that the cost overrun on the high-speed rail project is yet to be factored into MTR’s share price.
They noted that the rail operator is still trading at a 4 percent premium to its net asset value.
The share price should be traded at a 15 percent discount to the estimated net asset value instead, they said, rating the stock as a “sell”.
CLSA also criticized the special dividend proposal, saying that it won’t be in the interests of the company.
The brokerage cut its price target on MTR to HK$34 from HK$35.7 and downgraded the stock to “sell” from “underperform”.
Meanwhile, credit rating agency Moody’s is of the view that the proposal will have a negative impact on MTR’s ratings, given that it plans to issue debt for the proposed special dividend payout.
The ratings could be affected even though MTR does have room to increase its leverage, it said.
– Contact us at [email protected]