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THSRC's offshore convertible bonds assigned a rating

Taiwan Ratings Corp (中華信評) yesterday assigned its "twB" issue rating to Taiwan High Speed Rail Corp's (THSRC, 台灣高鐵) proposed five-year US$300 million unsecured convertible bond issue, with a stable outlook.

On Thursday, THSRC announced it would debut its US$300 million overseas convertible bonds on the Singapore Exchange, in a bid to internationalize and diversify its capital structure.

The rating reflects the challenges THSRC faces to raise passenger traffic for the high-speed rail system which is an attractive but still new mode of inter-regional transportation in the nation, Taiwan Ratings said.

The rating also reflects the aggressive financial profile of THSRC, which depends very much on debt financing, especially during the first few years of its operations, said the local arm of Standard and Poor's Ratings Services in a statement.

These weaknesses are partly mitigated by implicit government support, as well as limited construction risks for the moment, the ratings agency said.

THSRC priced the nominal value of the bonds at US$1,000 on Wednesday. Investors can sell the bonds back to THSRC after three years at a yield of 6.5 percent, THSRC said in a statement on Thursday. If by then THSRC has not listed its shares on the local bourse, the yield would be adjusted to 7.5 percent, it added.

With its commercial operations starting on Jan. 5, THSRC has maintained its average load factor above 50 percent after it increased its train schedule in late March to a frequency of 25 trains per day in each direction, up from 19.

Last month's revenue reached NT$1.1 billion (US$33 million), the first time THSRC has made more than NT$1 billion in revenues in a single month, according to a report submitted by the company to the Ministry of Transportation and Communications.

The ministry's report showed that THSRC's monthly revenue increased on average by between NT$100 million and NT$200 million since it started operations on Jan. 5, with NT$598 million of revenue in January, NT$670 million in February and NT$870 million in March.

"THSRC needs to raise passenger volumes to a financially sustainable level, such that it reaches break-even in operating cash flow after interest payments, which would enable the company to lower its debt level gradually as required by its consortium of banks," Taiwan Ratings said in its report.

THSRC's plan to further raise its journey frequency to 88 per day in each direction by the end of the year is challenging, as this would require a growth in daily passengers to above 100,000 from the current 35,000.

Bureau of High Speed Rail Director-General Pang Chia-hua (龐家驊) said that while last month's revenue was higher than that in March, a lower passenger load factor of 51.87 percent last month compared to 55.82 percent in March was reported because of the increase in the number of services in late March and a slower growth rate in the number of passengers.

THSRC needs to increase its passenger load factor this month before another increase in the number of services takes place on June 1, Pang said.

THSRC also needs to provide a more convenient ticketing system, including online bookings, he said.

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