Shenzhen International Holdings Ltd, an investment company controlled by the local government, surged yesterday after it announced it will buy a toll road and a stake in Shenzhen Expressway Co for 4.33 billion yuan.

The company jumped 14 percent, the biggest gain in five months, to HK$1.34 in Hong Kong trading.

It will acquire 90 percent of the operator of Shenzhen's Longda Expressway for 1.67 billion yuan and 19 percent of Shenzhen Expressway for 2.66 billion yuan, the company said.

Traffic has surged in Shenzhen because of the growth of manufacturing in South China's Pearl River Delta and the country's wider economic boom. Vehicle sales rose 25 percent in China last year as the country surpassed Japan as the world's second biggest automotive market behind the US.

"The acquisition could help drive the company's earnings," said analyst Wang Ren at CCB International Securities Ltd in Hong Kong. "Traffic in Shenzhen is busy, partly driven by the ports there."

Ports in Shenzhen boosted container volume by 11 percent in the first nine months of the year to 14.9 million 20-foot boxes.

Shenzhen International is buying assets from companies controlled by the city's government. The Shenzhen Expressway deal will be paid for in cash, financed by internal resources and external arrangements, the company said a Hong Kong stock exchange statement.

The deal will raise the company's stake in Shenzhen Expressway, operator of 14 toll roads, to more than 50 percent, it said. Shenzhen International won't make a general offer for the company, Shenzhen Expressway said in a separate statement.

Shenzhen Expressway fell 3.9 percent to HK$9.03 in Hong Kong and 3.8 percent to 13.42 yuan in Shanghai. Shenzhen International has almost tripled in Hong Kong trading this year.

Shenzhen International will pay for the Longda Expressway stake by issuing zero-coupon, three-year convertible bonds to Shenzhen Investment Holdings Co at a conversion price of HK$1.20 per share, it said. The Shenzhen government's stake in Shenzhen International will rise to 46 percent from 40.5 percent should the bonds be converted into shares.

The six-lane Longda Expressway is one of the major routes from Shenzhen to the Pearl River Delta, according to Shenzhen International. Daily toll revenue on the road averaged 572,000 yuan in the six months ended June 30, with traffic averaging 47,000 vehicles a day, the company said.

CITIC Securities International advised Shenzhen International on both transactions.

Bloomberg News

(China Daily 10/18/2007 page14)