HONG KONG: Mainland toll-road operator Shenzhen Expressway will earmark HK$3.4 billion for capital expenditure in the coming three years.

Shenzhen Expressway Chairman and Executive Director Yang Hai told reporters yesterday that the corporate war chest will be used mainly for maintenance on the company's highway projects.

Asked whether the company will undertake new investments in the near future, Yang said the company will take a prudent view on investment, due to the bleak economy.

Meanwhile, he noted, the company may leverage the market in the way of debt financing. The amount will be up to 3 billion yuan.

Given that the company's gearing ratio is at a high 57.6 percent, Yang admitted the ratio will shoot higher because of the leveraging. He stressed, however, that the company's financials are healthy on the basis of its strong operating cash flow.

A company spokeswoman noted that the amount of debt issuance is capped at 40 percent of the company's total asset value.

In addition, she said that the company is considering applying for loans up to HK$2 billion this year. Interest on the loans is expected to be between 5.5 percent and 5.7 percent.

But she refused to predict the company's full-year interest cost, saying it depends on progress of the loan application.

The company currently has 536 million yuan as cash-on-hand.

As to the company's profit margin, the spokesperson said she expects it to reach 22 percent this year from 13 percent in 2008.

The financial turmoil has hurt the company's highway business markedly commencing with the fourth quarter.

Flow of heavy trucks on the Shenzhen highway fell 20 percent for the first two months this year compared with the fourth quarter.

With the market uncertainty, she said it is hard to predict whether traffic flow will bottom out in the months ahead.

Yang Hai remained optimistic that the company's toll-road businesses will pick up apace given that the central government is putting up vast resources to mobilize domestic infrastructures.

Last year, the company posted a 10.31 percent increase in revenue to 4.24 billion yuan, while its net profit went down 19.15 percent to 503 million yuan due mainly to the decline of toll-road and entrusted management business.

Shares of Shenzhen Expressway closed at HK$2.95, up 3.14 percent on Friday.

(HK Edition 04/04/2009 page2)