(5 November 2019, Hong Kong) Yuexiu Transport Infrastructure Limited (“Yuexiu Transport Infrastructure” or the “Company”) held a special general meeting at Novotel Century Hong Kong to pass resolutions on the acquisition of three expressways in Hubei Province from Yue Xiu Enterprises (Holdings) Limited. The resolutions were passed by a unanimous vote.
All the three acquired expressways are located in Wuhan, the capital of Hubei province, and the city’s surrounding area. The possible synergies will be formed with other expressways in Hubei Province under the Company. Hancai Expressway and Han’e Expressway are two of the seven fast urban exit roads under Wuhan’s urban planning. Together with Hanxiao Expressway, the Company will operate and manage three out of seven fast urban exit roads of Wuhan. Meanwhile, Daguangnan Expressway connects Hubei and Jiangxi Provinces vertically, and forms the southern part of the Daguang Expressway (running from Daqing in the north and ends at Guangzhou in the south, being one of the 11 national trunk lines running from north to south in the PRC expressway network) in Hubei province. Han’e and Daguangnan Expressway are major expressways leading to Shunfeng E’zhou Airport. Shunfeng E’zhou Airport is positioned to become a national logistics hub and air cargo freight transshipment airport. After construction, the airport will become the fourth cargo airport in the world and the first cargo airport in Asia.
(Hancai Expressway)
The acquisition has a significant effect on improving the company's asset scale, total attributable toll length and sustainable development ability. The acquisition of the three expressways will increase the Company’s total assets to RMB35.83 billion from RMB22.24 billion and boost the total length of the expressways and bridges in which the Company has controlling equity interests by 58.4% to 534.9 kilometers from 337.1 kilometers.
The Company intends to finance approximately 60% of the total consideration by bank loan for acquisition and approximately 40% by internal resources, making full use of leverage while maintaining investment grade ratings (Baa2 for Moody's and BBB- for Fitch and S&P).
The internal rate of return (IRR) of the acquisition is expected to reach 9.4%, which is a considerable return in the context of decelerating global economic growth. Since the announcement of the company's acquisition, under the background of poor performance of Hong Kong stocks, the Company stock price has risen steadily, reaching new high prices repeatedly, and the Price-to-Book Ratio (P/B ratio) has broken 1 for the first time in the past 10 years. In the 36 trading days ended November 5, the share price rose in 26 trading days. The share price was 6.37 HKD on September 12th, and rose to 7.35 HKD on November 5th, with a cumulative increase of 15.4%.
The acquisition is in line with the Company’s strategy of “establishing a foothold in the Guangdong-Hong Kong-Macao Greater Bay Area and expanding into central China” and help the Company to realize the balanced allocation of mature assets and growth assets in operation management portfolio, to form synergic effect in Hubei Province, and to improve market shares as well as competitiveness in Hubei Province. The Company will adopt targeted marketing strategies to improve the traffic volume and income of the expressways and leverage on the investment grade credit ratings to reduce the overall financial cost through debt restructuring. Besides, the Company has already set up regional headquarters in Wuhan to further leverage the Company’s operational experience accumulated in Central China in order to enhance its management efficiency and make use of the economy of scale effect.