High-speed rail firm plans IPO

Taiwan High Speed Rail Corp (THSRC, 台灣高鐵) plans to raise NT$7.5 billion (US$221 million) from an initial stock sale by next May to help finance construction.

The company may also sell shares abroad if the domestic offer is successful said chief financial officer Lee Sheau-jin (李曉金).

He did not disclose the amount the Taipei-based builder plans to raise overseas to fund the so-called bullet train service, which will cost an estimated NT$461 billion.

THSRC needs to persuade investors to buy stock in a project that has already been delayed by a 13 percent cost overrun and may not make a profit in its first years of operation.

The company had to seek government permission to increase its debt ratio to raise funds for the 345km rail route, due to begin service by the end of next October.

"The first risk is to get enough funding to complete the project," said Tony Tsai (蔡東松), an analyst of Taiwan Rating Corp (中華信評), a Standard & Poor's affiliate.

"The second risk is getting enough passenger revenue. Very few companies like this can make a profit in the first two or three years of operation," he said.

THSRC will run its bullet train service from Taipei to Kaohsiung, cutting traveling time between the cities by two-thirds to 90 minutes. It will be able to carry 300,000 passengers everyday, for an average fare of NT$1,300 per person, almost triple the cost in a slower, conventional train.

Fubon Financial Holding Co (富邦金控), the nation's third-biggest financial services company, is one of a group of investors in THSRC, owning NT$3.5 billion in the railway operator's common and preferred shares.

"We are interested in being a long-term investor in the company as long as it can generate steady cash flow," said chief financial officer Victor Kung (龔天行).

THSRC has said it plans to buy NT$95 billion of bullet trains, signaling and other systems from Mitsubishi Heavy Industries Ltd, Toshiba Corp, Kawasaki Heavy Industries Ltd, Mitsui & Co, Mitsubishi Corp, Marubeni Corp and Sumitomo Corp.

THSRC hasn't disclosed any detail on the pricing of its share offer. Investors, including Fubon, said they may buy more THSRC shares if the price is acceptable.

The company's shares currently trade outside Taiwan's stock exchange in a so-called gray market, the Emerging Stock Market (興櫃市場), for NT$8 a share, or about a fifth less than the NT$10 face value of its shares, according to Tsai. The shares' price rose after the construction risk was reduced, he said.

THSRC doesn't need to make a profit before its stock sale because it has been given a special status by the government to build, operate and transfer the right to manage the project for 35 years.