Attracting Capital for Railway Development
The World Bank
The World Bank
In the last decade, China has developed the world’s largest high-speed rail network. The question now facing China Railways Corporation (CRC) is how to finance its continued development. Responding to CRC’s interest in exploring new capital sources, and suggesting different financing channels as a way to leverage the value of its assets and introduce market-based business models to the sector, the Bank prepared a study report, titled Attracting Capital for Railway Development in China, which provides some insights into this, with case studies on how companies in China and railways in seven other countries have attracted capital and have made capital budgeting decisions to support their strategic development. The study suggests that CRC can: (i) expand its financial sources through organizing and managing its subsidiary entities to maximize their value and generation of cash flows; (ii) effectively apply PPP concepts through land value capture and integrated land development; (iii) capture its right-of-way value through telecommunications services; (iv) raise new equity through IPOs of profitable and well governed subsidiary entities; and (v) leverage financing from the railway’s large fixed asset base.
The report concludes that railways worldwide have been able to employ a wide range of mechanisms to attract investment capital to the sector. A common requirement for the investor is that the investment is profitable and the profit is commensurate with the risks undertaken. CRC may consider the cost, benefits and risks of each mechanism and employ ones that are best suited to its needs.