The operator of the Beijing-Shanghai High-speed Railway is on track to float the company on the Shanghai bourse by the end of the year.
The 1,318 kilometer-express link between China’s two largest cities with bullet trains that roar along at 380km/h is a trophy asset of the China State Railway Group.
Its operator raked in more than 10.2 billion yuan (US$1.5 billion) in net profit in 2018 thanks to robust patronage, competitive pricing, downtown-to-downtown stops, plus a streamlined security check to poach passengers away from airlines.
The prospectus for the landmark IPO, tipped to be one of China’s largest share sales this year, also revealed that the operator of the trunk route only has a staff of 67 with a gearing ratio of a mere 14.6%.
About 15% of the lucrative railway operator’s shares will be up for grabs, with numerous corporate and individual investors jostling to get aboard, as the line served 190 million passengers last year with an average occupancy rate of 80%.
A one-way ticket from Beijing South Railway Station to Shanghai’s Hongqiao Station in second class costs 553 yuan and the journey takes a little over four hours.
The Chinese government and the nation’s commercial debtors forked out 221 billion yuan for the project during Hu Jintao’s presidency in 2008. The line, which goes through seven municipalities and provinces in north and eastern China, was completed in 2011. The tidy profit means the hefty investment will be recouped within the next 10 years.
The impressive profit margin contrasts sharply with other loss-making lines as China is still on a spree linking more far-flung cities and towns with express railways, which has led to doubts about the financial sustainability of other rail lines. China sat on a growing pile of debt totaling more than 5 trillion yuan during the first half of 2019, when bullet trains start to pound along tracks in central and western regions despite tepid demand.
But with the upcoming IPO, it is clear that China aims to subsidize construction and operation of less profitable yet strategically vital lines with the fat profits generated from riders and business travelers that commute on the rail artery among Beijing, Tianjin, Shanghai as well as other industrial boomtowns in between, in Shandong and Jiangsu provinces.
China’s other profitable lines include the Guangzhou-Shenzhen Railway – a modernized mainland section of the historic Kowloon to Canton Railway – and the new cross-boundary express serving Guangzhou, Shenzhen and Hong Kong.
The 147-km railway between Guangzhou and Shenzhen generated almost 20 billion yuan in revenue in 2018, according to its listed operator, with inter-city through trains departing from each end at 10-minute intervals to cater for growing demand.