China Railway floated its most profitable line and raised ¥30.7bn instead of borrowing

China Railway, spun off from the railway ministry in 2013 as a commercial entity, operates about 35,000 kilometres of high-speed line and carries a debt burden in the hundreds of billions of dollars. In January 2020 it took the best piece of that network to market. Beijing-Shanghai High-Speed Railway Co., operator of the 1,318-kilometre line, priced its initial public offering at ¥4.88 a share — about 6.3 billion shares, or 12.8% of the company — to raise roughly ¥30.7 billion ($4.4 billion).

The line had the record to carry it. In service since 2011, it had transported just over one billion passengers, with average annual passenger volume growth of 20.4% since inception. Revenue rose 5.4% in 2018 to ¥31.2 billion and profit attributable to the parent rose 13.2% to ¥10.2 billion; the company guided to ¥11 billion to ¥12 billion for 2019, growth of 7.4% to 17.1%. At the offer price that was a price-earnings ratio of about 23, and one of the largest mainland listings of recent years, behind only Postal Savings Bank of China's $4.8 billion flotation the previous month.

The money had a stated job. The company planned to use the proceeds to buy 65% of a sister firm operating several China Railway lines in eastern Anhui province, a purchase expected to cost ¥50 billion — which left ¥19.3 billion still to be found elsewhere. The listing was also part of a wider programme: at the group's annual work meeting, chairman Lu Dongfu said China Railway would keep overhauling its structure and monetising assets to become more commercial and pay down debt, including more IPOs of other units.

The market's verdict came on the first day, 16 January 2020. The shares opened up 20.08% at ¥5.86, giving the company a market value of ¥287.8 billion in the opening call auction, then rose 43.24% until trading was temporarily suspended — a first-day value of ¥343.3 billion, or $49.87 billion, for the operator of a single line that had been built largely with borrowed money.

¥30.7bn ($4.4bn) of equity at ¥4.88 a share for 12.8% of the line; first-day trading up 43.24%, valuing the company at ¥343.3bn ($49.87bn).

Debt built the network; only equity could pay it down, and equity needs an asset with published, growing profits.

The Beijing–Shanghai line was one of China Railway's most profitable businesses, so it could be valued on earnings rather than on a strategic plan.

Listing 12.8% rather than a controlling stake let the state keep the asset while still raising ¥30.7 billion of cash.

The proceeds were earmarked for a specific acquisition — 65% of an Anhui line operator — which gave the offer a use, not just a deleveraging story.

It set a template: the chairman said the group would keep monetising assets and taking more of its units public.

When the balance sheet is the problem, list the asset that already works. A profitable, measurable line can raise equity at 23 times earnings; the loss-making network around it cannot.

The shares finished their first day up 43.24% with trading temporarily suspended and a market value of ¥343.3 billion ($49.87 billion), against the ¥30.7 billion raised. Buying 65% of the Anhui line operator at an expected ¥50 billion still left ¥19.3 billion to be found from other sources, and the group said it would continue monetising assets and taking more units public. For a railway that built 35,000 kilometres of high-speed line largely on debt, the flotation showed its best asset was worth more as a listed company than as a line buried in a balance sheet.