BTS Group Holding Plc
News. BTS and CITIC Construction, an affiliate of CITIC Group, a Chinese-state owned
company operating an extensive chain of businesses from banking and finance to
machinery manufacturing and the IT industry, have jointly formed a consortium to bid
for the concession to operate Beijing Subway Line 16 Franchise Project for a 30-year
period. On Feb 7, 2014, BTS-CITIC Consortium submitted the tender proposal and the
bidding documents. BTS expects the results of the bidding to be announced within
Beijing Subway Line 16 will be a new subway line in western Beijing, extending 50km
north-south from Beianhe to Wanping with a total of 29 stations. Operations are
expected to commence in 2018. This project is being built under a public-private
partnership (PPP) investment scheme, with the state doing the actual construction.
The winning bidder is required to invest RMB15bn in the E&M (electrical and
mechanical) system, which includes rolling stock, signaling system, automatic fare
collection system, and tools and equipment for maintenance and to manage, operate
and provide maintenance for 30 years. In return, the concessionaire will get farebox
revenue, state subsidy and non-farebox revenue.
The BTS-CITIC Consortium is bidding against: 1) Beijing Mass Transit Railway Operation
(a Chinese state-owned company), the operator of the majority of Beijing’s subway
lines and 2) Beijing MTR (a JV of Beijing Capital Group, a Chinese state-owned company
and MTR Corporation, a subway operator in Hong Kong), which currently operates two
other Beijing subway lines.
This is the first overseas project for which BTS has actually bid, with earlier projects
in Indonesia and Vietnam still under study. BTS expects more bidding
opportunities in China as its government appears to have more concrete plans
than some other countries.
BTS says the downside risk from this project is limited, with an agreed minimum
fare revenue from the government, but upside might be also somewhat limited
because of the share of revenue that must be given to the government.
Of total project value of Bt80bn, BTS will inject ~Bt16bn, based on: 1) BTS’s 49%
stake (CITIC also 49% and 2% for BII - Beijing Infrastructure Investment Co., Ltd., a
Chinese state-owned company) and 2) target D/E of 1.5:1. The funding is not a
problem, since it had net cash at end-Sep 2013 of Bt18bn and the funds will be
required only gradually as construction progresses throughout 2015-17. It also will
not be constrained by spending on local bids since most new projects will be
delayed until a new government is set up.
Assuming IRR at 12-13%, WACC at 8.7% and growth at 0% (30-year operation), we
estimate the incremental value from this project at Bt2-3bn, or Bt0.2-0.3/share.
This is not yet included in our PT at Bt10.3, as we wait for the bid results.