You last raised funding in June 2003, what was the objective?
Cheung: Yes, we raised HK$1 billion in retail bonds in June. Basically the goal was to take advantage of the very liquid Hong Kong bond market and also to respond to the government's wishes to promote the Hong Kong debt market. We issued a 10-year maturity retail bond, which hadn't been done before. The offer was part of our general funding for our current prime projects such as the East Rail extension and the Kowloon Southern Link, the extension connecting the West Rail and East Rail projects.
Were you happy with the pricing?
We got extremely good pricing, at a very low fixed-rate coupon. We then swapped that into floating rate which, given the very liquid market, achieved excellent funding in terms of Hibor. In fact, a portion of it was even sub-Hibor funding.
How important is pricing to you?
Pricing is very important, of course. It determines the timing of when we decide to go to the market, but it's difficult to say exactly how important it is.
You've been a relatively scarce player in the Hong Kong dollar market, do you have any plans to return?
That's right, we have been a scarce participant in the Hong Kong dollar market. In fact this is the first time we've issued in the Hong Kong market since 1996. However, we have issued in the international markets since then. We issued US dollar bonds in 1999 and 2000. So in that sense we have approached the international market. As for raising further funding this year, we believe it's possible during the second half of the year. We may look at the Hong Kong dollar or international markets again, whichever gives us the best terms.
What's your view on interest rates?
At the moment other people seem to be saying interest rates have bottomed out. We tend to agree with that. We don't think there'll be much movement in the short-term, but for longer-term rates the yield curve will be relatively steep given the large US trade deficit and so on. We think that after June there's a good possibility of rates going up by 25bp to 30bp by the end of the year. But I don't think that will affect our strategy. Our fixed rate borrowing is around 70% so we are quite comfortable.
How much outstanding debt do you currently have?
We have HK$20 billion ($2.56 billion) outstanding.
What are your attractions as a credit?
We are a very stable business because most of our revenues come from fares. What that means is that we're quite unlike our sister company the Mass Transit Rail Company, which is more unstable because lots of its revenue comes from property earnings. Of course, fare income is by its very nature more constant, more reliable. And our track record proves it. We have been constantly profitable since 1995. Unbroken, consistent profitability for 20 years.
Given the less stable earnings of MTR how well will the two companies fit together in the proposed merger?
When you put two large, similar-sized companies together you end up with a company with a much larger, stronger asset base. We are both HK$100 billion companies so I think the two together would become even stronger, were we to merge. We have obvious similarities and so the two companies complement each other. And, of course, with the increasing interaction between China and Hong Kong we stand to benefit from our rail connections with the mainland.