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Railway Eyes A Shares for $1.85B
Guangshen Railway has joined the growing ranks of fellow H-share companies in seeking to raise 1.98 billion yuan (about HK$1.85 billion) for a listing in Shanghai through the issue of mainlanders-only A shares.
The company has applied to the China Securities Regulatory Commission to issue 550 million A shares, which are traded in yuan and can be bought only by institutional and public investors in China.
The new shares will be equal to 18.9 per cent of the existing share capital.
Guangshen Railway said the issue price would be fixed according to the price earnings ratio through a book-building exercise. The proceeds would be used to finance the estimated 3.6 billion yuan needed to build the company's fourth section of track.
Guangshen Railway operates the sole rail line between Guangzhou in Guangdong province and Shenzhen, and participates in through-train services between Guangzhou and Hong Kong. Its H shares are listed in Hong Kong and New York.
The plan follows similar fund-raising proposals by H shares Tsingtao Brewery, Guangzhou Pharmaceutical, Shenzhen Expressway, Yanzhou Coal Mining and Jiangxi Copper in the past few months.
The move by such companies to issue A shares was triggered in July when Beijing lifted an unwritten ban on H-share companies discouraging them from issuing more than one class of shares.
The announcement came days after the Ministry of Railways revealed that a restructuring had led to it demerging with five companies.
The move, part of Beijing's effort to separate government from business, is seen as driving government-related corporations to operate more independently and to focus on market demand.
The railway operator said the issue of A shares would facilitate the financing of the 139.96-kilometre link between Guangzhou and Pinghu, and would help to enhance the shareholder base as well as the capital base of the company.
The completion of the fourth track will broaden Guangshen Railway's network, transport capacity and competitiveness.
However, the Guangzhou Pinghu track had yet to receive approval from the relevant authorities in China, and the share-issuance plan must also be ratified by shareholders, the company said.
Both A shares and H shares can be issued by Chinese companies. A shares are traded in yuan on the Shanghai and Shenzhen stock exchanges while H shares are traded in Hong Kong dollars in SAR.
Mainland companies have been losing interest in seeking a listing or issuing shares in Hong Kong because of the lower price-earnings multiples on offer.
A-share companies can trade at up to 50 times their price earnings ratio in China, while H shares usually trade at deep discount to A shares, analysts said.
As a result, an increasing number of mainland firms are looking back at the domestic market where the returns can be greater.
Guangshen Railway's H shares are trading at 8.3 times price earnings, based on its earnings last year, with a 7.5 times prospective price earnings based on an average earnings forecast.
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