Banks ante up for rail project

Twenty-five banks -- led by Chiao Tung Bank (交通銀行), Bank of Taiwan (臺灣銀行) and the International Commercial Bank of China (中國國際商業銀行) -- signed an agreement yesterday in which they will provide NT$68.3 billion in financing to the Taiwan High Speed Rail Corporation (THSRC, 臺灣高鐵公司).

The amount is a part of a larger NT$323.3 billion syndicated loan -- by some accounts, the world's largest ever -- in which NT$240 billion in loans will come from government deposits at the 25 banks. Lending terms for the remaining NT$15 billion have yet to be decided.

"The high-speed railway is the biggest private investment project in Taiwan," said Liang Cheng-jin (梁成金), president of Chiao Tung Bank. "Through a chain reaction effect, industrial output, employment and GDP will all benefit from the project."

For the banks' portion of the loan package, the interest rate has been set between 8.085 percent, or the average of prime lending rates for Bank of Taiwan and ICBC, plus 0.6 percent. The banks' loans will last 20 years, and there will be a six-year grace period in which no payments are due.

For the government's portion, the interest rate has a set range between 6.3515 percent and 6.8 percent.

Lin Fong-cheng (林豐正), minister of the Ministry of Transportation and Communications (交通部), said that once the project starts construction, THSRC would spend about NT$60 billion per year.

Nita Ing (殷琪), chair of the THSRC, said the government's backing was important in leveraging the assistance of the 25 bank lenders.

"The government's support and the three leading banks' effort in the process of financing the high-speed railway project is highly appreciated," Ing said.

Since September 1998, the THSRC and the three leading banks had been working on the financing project, trying to find a way to minimize possible financial risk to the private lenders.

A Chiao Tung executive, who asked not to be identified, said that the banks' loans would be given dollar-for-dollar protection by the government. Should THSRC fail, the government would take over the project, which is estimated to have NT$455.3 billion in equity.

According to Jessica Wu (吳怡君), senior vice president of Global Financial Services, a firm that provides financial analysis for THSRC, the corporation also plans to raise NT$132 billion in addition to yesterday's announced loan package.

"Currently, THSRC has raised NT$20 billion," Wu said. "We expect to raise another NT$10 billion by the end of June."

Chu Yu-chun (朱玉君), analyst at National Securities Corp (建弘證券), said that the huge size of THSRC's loan would not lead to tightening in the capital market this year.

"The demand is diverted over the years to come," Chu said. "This year, the estimated demand is roughly only NT$5 billion."

Furthermore, public construction projects such as the high-speed rail face possible delays and, therefore, the impact on the financial market is prolonged, Chu said.

Taiwan's high-speed railway project is its first Build-Operate-Transfer (BOT) project and is slated to begin operating in 2005.

"Eleven land construction bids should be finished by April," said T.C. Kao (高聰忠), vice president of the construction management group at THSRC. Kao said he expects the service to start on time.