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Following is a question by the Hon Tony Tse and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (June 25):
Question:
In recent years, the MTR Corporation Limited (MTRCL) has been actively developing property development investments and railway-related businesses (e.g. its wholly-owned project of MTR Stockholm AB (MTRS) in Sweden) outside Hong Kong (including the Mainland, Europe and Australia). In this connection, will the Government inform this Council:
(1) whether it knows the information on each of the businesses/projects of MTRCL outside Hong Kong, including the specific contents, as well as the investment amounts, expected and actual profits and returns, etc., in the past three years; whether MTRCL has assessed and managed the risks of each investment and development project outside Hong Kong; if it has, of the results; whether MTRCL has set any objective of investment returns, made clear the individuals/institutions bearing the various types of risks, set an upper limit on risk tolerance, set a cap on the amount and share of investment, and how it ensures that the company will not put the cart before the horse by developing businesses outside Hong Kong at the expense of its local business;
(2) of the role, powers and responsibilities of the Government in MTRCL's development of businesses outside Hong Kong; whether it has formulated relevant codes and guidelines for compliance by MTRCL; if it has not, of the reasons for that; if it has, the specific contents of such codes and guidelines, and whether it has reviewed and amended them on a regular basis; and
(3) whether it has assessed the pros and cons of MTRCL's development of businesses outside Hong Kong with respect to the railway services provided by MTRCL in Hong Kong; if it has, of the assessment outcome and corresponding measures; if not, the reasons for that?
Reply:
President,
My reply to the various parts of the question raised by the Hon Tony Tse is as follows:
Hong Kong is the home base of the MTR Corporation Limited (MTRCL). Local business has been the foundation of MTRCL's development strategy. The Corporation undertakes that the development of local business will not be affected by its pursuit of businesses in the Mainland and overseas.
MTRCL has been expanding its railway and property-related businesses in the Mainland and overseas through joint ventures and wholly-owned subsidiaries. In the Mainland, MTRCL has been involved in the construction and operation of Beijing Metro Line 4, Daxing Line and Line 14, Shenzhen Metro Longhua Line and Hangzhou Metro Line 1. As regards its overseas business, the Corporation is responsible for operating the London Overground, a railway system in London, the United Kingdom; the Melbourne train system in Australia; and the Stockholm Metro in Sweden. MTRCL is also currently involved in property development projects in the Mainland, respectively in Shenzhen and Tianjin. In 2013, the contribution of railway and property-related businesses outside Hong Kong to the Corporation's profit for the year is HK$487 million. Provided by MTRCL, details of its invested and committed projects outside Hong Kong (including the amount of investment and business model, etc. of each project) are set out in Annex (Note 1). Details of anticipated and actual profits as well as target return on investment of each project are not provided as they are commercially sensitive information. At present, all profits generated by Mainland and overseas businesses are included in the Corporation's underlying business profits, part of which are shared with passengers in Hong Kong vide the "10% Same-Day Second-Trip Discount" under the "Profit Sharing Mechanism" introduced after the review on the Fare Adjustment Mechanism of MTRCL in 2013.
MTRCL points out that in considering its investment and business development outside Hong Kong, it will take into account the following series of factors:
(i) utilisation of experience and expertise gained from core business in Hong Kong to enhance the quality of operation in the Mainland and overseas, with a view to promoting the brand name and image of MTRCL;
(ii) provision of opportunities for working and learning in cities in the Mainland and overseas for employees from Hong Kong. They can bring back to Hong Kong the experience gained in construction, operation and management from different places to enhance professional knowledge in the local business, and make continuous improvements to service; and
(iii) whether reasonable business returns based on the risk level of investment projects can be achieved.
MTRCL points out that it carefully analyses each and every potential project before making an investment. The analysis includes a review on the risk and return, legal and regulatory factors in the local environment, market competition, staffing need from Hong Kong, and local human resources, etc. Other than carrying out assessments internally, the Corporation also engages external consultants for assistance and advice as necessary, with a view to ensuring that the investment is pursued on the principle of striking a balance between risks and reasonable returns. MTRCL has established a set of stringent assessment and approval procedures for its business development outside Hong Kong. In accordance with the amount of investment and nature of each project, an Executive-level Investment Committee will examine the merits and feasibility which will be followed by a review by the Executive Committee chaired by the Chief Executive Officer and comprising all Executive Directorate and General Manager - Corporate Relations as members. If necessary, the project will undergo a due diligence review undertaken by an independent review group formed by staff members from different departments who are not associated with the project. The group will then submit a review report on risks and details to the Executive Committee. Finally, the project is presented to the MTRCL Board for approval. Projects which have been approved to proceed are subject to periodic internal review on areas including business risk-management and operational safety, etc. The MTRCL Board has earlier decided to review matters including the Corporation's business strategy and human resources allocation, etc. for its businesses outside Hong Kong, so as to ensure that local business is not affected.
MTRCL's businesses in the Mainland and overseas are centrally managed by the China and International Business Division led by the Deputy Chief Executive Officer. This division ensures businesses outside Hong Kong are developed in accordance with the established strategies and within the financial budget. The China and International Business Division regularly reports to the Executive Committee and the MTRCL Board on the status of all projects.
According to information provided by MTRCL, its total investment in Mainland projects cannot exceed 15% of the Corporation's shareholders' fund including all equity investment and shareholders' loan. This ratio and whether or not this ratio shall cover the Corporation's overseas business are subject to internal review by the Corporation from time to time. The Corporation's shareholders' fund in 2013 was HK$152.6 billion. The total investment in Mainland business, amounted to around HK$12.52 billion, was 8% of the total shareholders' fund. For overseas business, MTRCL's existing and committed investment was around HK$667 million.
MTRCL points out that its management of businesses in the Mainland and overseas follows the principle of "on-the-ground management", e.g. Beijing Metro Line 4, Daxing Line and Line 14 are managed by the joint venture Beijing MTR Corporation Limited (MTRCL holding 49% shares), while the Melbourne train system is managed by the joint venture Metro Trains Melbourne Pty. Ltd (MTRCL holding 60% shares). As at May 31, 2014, there are 139 Hong Kong employees involved in businesses outside Hong Kong. Apart from the dedicated staff responsible for businesses outside Hong Kong, 27 are temporarily seconded from Hong Kong business.
MTRCL must pursue its businesses outside Hong Kong under the premise of keeping its primary focus on the local railway service. The Government has always reminded the Corporation not to put the cart before the horse and explore Mainland and overseas businesses at the expense of local service. The Corporation undertakes that the development of local business will not be adversely affected by its pursuit of businesses in the Mainland or abroad. In fact, the Corporation's staff in the Mainland and overseas are mostly recruited domestically instead of being deployed from Hong Kong. Up to May 2014, MTRCL has recruited a total of around 16 200 local staff from the Mainland and overseas.
The Government understands the public's concern about the governance and business strategy of MTRCL, and we will proactively carry out our duty as the Corporation's majority shareholder. We will call on the Corporation to seriously review its corporate structure and operation as well as to make necessary reform. The Government will also call on the MTRCL Board to review the Corporation's direction and strategy of businesses outside Hong Kong. The Government has a list of measures in place to strengthen the MTRCL Board including nominating additional Board Directors. As MTRCL is a listed company, any measures we implement have to comply with the Companies Ordinance and Listing Rules. However, MTRCL is also a company that serves the public as it operates the whole railway network in Hong Kong. The Corporation has its public responsibility to fulfill, and local Hong Kong business always comes first. It is therefore not simply on a par with ordinary listed companies.
Note 1: MTRCL's projects outside Hong Kong are at different stages of equity injection depending on actual status of each project. The amount of investment is not on a per year basis. Therefore, only the invested and committed amounts of investment of the projects are provided.
Ends/Wednesday, June 25, 2014
Issued at HKT 14:30
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