China Merchants Holdings Pacific

[Nick]

Hi Nick,
Leveraging on the information from Hua Na Expressway (MIIF's portfolio) - There is currently a 'national review of toll rates' going on, a bid by China to bring down its inflation rates. According to MIIF, the HNE folks are under high pressure from the GuangDong Transport Bureau to do so - and judging from this disclosure and re-rating of HNE's valuation, i believe it will happen this year.

Just wondering whether CM Pacific will be hit by this 'national review of toll rates' as well? (maybe not since they have the blessing of SOE?)

This is possible and a risk in infrastructure investing. Though, I would think that they wouldn't make the dividend target if they knew their revenue was going to plunge ? But with that being said, who knows haha ! They recently agreed to sell a toll road back to the Government as the latter wanted to detoll it. A toll rate decline will hit the bottom-line (depending on the proportion of the cut) and there will most likely be a dividend cut unless they don't mind raising their payout ratio. But I would expect debt servicing to take priority. In the long run, they need to expand into new provinces to reduce such risk.

Some relevant articles:

http://www.jsexpressway.com/information/...5_1528.pdf [Jiangsu Expressway Toll Rate Review]

http://www.thenanfang.com/blog/guangdong...toll-fees/ [About HNE rate review]