HONG KONG, Oct 12, 2020 - (ACN Newswire) - Canggang Railway Limited ("Canggang Railway", together with its subsidiaries, the "Group"), which is ranked first among all local freight railway operators in Hebei Province and fourth among all local freight railway operators in China , has announced the details of its proposed listing on the Main Board of The Stock Exchange of Hong Kong Limited ("HKEX"). As the operator of the Canggang Railway Line, the Group principally provides eastbound and westbound rail freight transportation services and other ancillary services, including loading and unloading, road freight transportation, operation, repair and maintenance of Special Service Lines, railway roadbed and other railway facility construction and certain other businesses.

Offering Details

The Group intends to offer an aggregate of 250,000,000 shares (subject to the Over-allotment Option), of which 225,000,000 shares (subject to the Over-allotment Option and re-allocation) will be for International Placing and 25,000,000 shares (subject to reallocation) will be for Hong Kong Public Offering. Indicative Offer Price ranges between HK$0.85 and HK$1.10 per Offer Share. Assuming the Over-allotment Option is not exercised and an Offer Price is set at HK$0.975 per share (being the mid-point of the Offer Price range), the estimated net proceeds from the Offering will amount to approximately HK$199.0 million after deducting underwriting expenses and other estimated expenses in connection with the Global Offering.

The Hong Kong Public Offering will commence at 9:00 am on 12 October 2020 (Monday) and will end at 12:00 noon on 15 October 2020 (Thursday). The final Offer Price and allocation results will be announced on 22 October 2020 (Thursday). Trading in Canggang Railway's shares will commence on the Main Board of HKEX on 23 October 2020 (Friday) under the stock code 2169. Shares will be traded in board lots of 4,000 Shares each.

Innovax Capital Limited is the Sole Sponsor of the listing. Innovax Securities Limited and Guotai Junan Securities (Hong Kong) Limited are the Joint Global Coordinators, Joint Bookrunners, and Joint Lead Managers.

Investment Highlights

Excellent railway location and growth potential Prime location provides the Group with a stable business pipeline and growth opportunities. The Group operates the Canggang Railway Line, which begins at Cangzhou and ends in the Bohai New Area, which includes Port Huanghua, and is connected to the Shuo-Huang Railway Line and the Han-Huang Railway Line. Coal transportation accounts for the majority of the Group's total rail freight transportation cargo. The location of the Canggang Railway Line puts the Group between coal rich areas in western China, particularly Shaanxi Province, Shanxi Province and Inner Mongolia, where a large number of coal mines are located, and coal hungry areas in eastern and southern China.

Alongside the continued growth of the Chinese economy, demand for coal from the eastern and southern markets of China is expected to continue increasing, rising from 1,427.1 million tonnes in 2019 to 1,494.1 million tonnes in 2024. The Chinese government has formulated the "Coal Transportation from West to East" national strategy, emphasizing the importance of transporting coal from the western to the eastern parts of the country. The location of the Canggang Railway Line makes the Group an integral part of a comprehensive railway-port transportation network (together with the Shuo-Huang Railway Line and the Han-Huang Railway Line), linking the coal production regions and consumption areas of China, thereby allowing the Group to benefit from the government policy and providing it with a stable business pipeline relating to the transportation of coal.

According to a Frost & Sullivan Report, Port Huanghua was the largest and second largest port in China in terms of coal shipment volume in 2018 and 2019, respectively. It will be an important port for the "Belt and Road Initiative" and development of the Xiong'an New Area. Furthermore, Port Huanghua ranked eighth and eleventh among all ports in China in terms of average daily throughput of ore in 2018 and 2019 respectively. The cargo throughput of Port Huanghua is expected to increase from 287.7 million tonnes in 2018 to 460.0 million tonnes in 2025, representing a CAGR of 6.9%. Port Huanghua is therefore expected to become even more important to the transportation and distribution of coal in China in the future.

With regard to the Bohai New Area, it is recognized as a national economic and technological development area , a national model base for new industrialization and an experimental base for logistics in China. The region will play an increasingly important role in the national economy, drive demand for rail freight transportation and provide potential customers to the Group.

The Group also provides services to a number of customers in the northern Shandong area, which is the core junction of the Jing-Jin-Ji area and Shandong Province where a number of heavy coal users, chemical manufacturers and petrochemical companies are located.

Favorable government policies that help the Group maintain its geographic advantagesAccording to relevant government plans including the 13th Five-Year Plan for Railway, there are no construction plans indicating that any new freight transportation railways will be constructed in the Cangzhou-Port Huanghua area in the next five years that may potentially compete with the Group's railway. The Chinese government has been adjusting the overall transportation layout to increase rail freight transportation and decrease road freight transportation. At the end of 2018, the government started forbidding trucks from loading or discharging coal at Port Tianjin and other ports at Bohai Bay. According to the notice issued by the State Council , by 2020, as compared to 2017, the country's railway freight volume should increase by 30%, the railway freight volume in the plain areas of Beijing-Tianjin-Hebei and its surroundings should increase by 40%, the railway freight volume in the Yangtze River Delta should increase by 10%, and the railway freight volume in Fenwei plain should increase by 25%.

Furthermore, according to the Three-year Action Plan to Win Battle for a Blue Sky issued by the State Council in July 2018, the only allowed method for transporting coal to key ports, including Port Huanghua, would be by sea or railway by the heating season of 2020. Hence, the rail freight transportation industry is expected to grow, which will provide room for development of the Group's business.

A high degree of exclusivity and insulation from competitionThe Group took part in the construction of roadbeds for the Special Service Lines. Some of these lines run directly to the factories or premises of major local customers from the main railway line. The Group provides efficient transportation services at a low cost through its Special Service Lines and has established strong co-operative relationships with its major customers.

While there are other railways in the Cangzhou-Port Huanghua area, direct competition from other railways is limited due to pre-existing differences in terms of the function of each railway. The Han-Huang Railway Line provides northeast-bound and southwest-bound rail freight transportation services in Hebei Province, while the Canggang Railway Line provides eastbound and westbound rail freight transportation services, each serving different customers located in different provinces. The Shuo-Huang Railway Line mainly serves companies in the same group as its owner, while the Canggang Railway Line is open to all third-party customers. There is no other railway in the Cangzhou-Port Huanghua area that fulfills the same function as the Canggang Railway Line, allowing the Group to enjoy a significant degree of exclusivity in the rail freight transportation of coal.

Canggang Railway Line is the only railway line that stretches to the Hekou Area of Port Huanghua, a developing area located southeast of Port Huanghua. Four additional piers servicing ships of up to 5,000 tonnes each in Hekou Area of Port Huanghua are expected to be operational in early 2022. Upon commencement of their operation, coal transported by the Group's railway to these piers can be further transported by sea from the Hekou Area directly to customers who have piers in Shandong.

In addition, in northern Shandong area, due to the close proximity of the Group's stations to the premises/ factories of several of its major customers, it is able to deliver coal from the Shuo-Huang Railway Line to these customers at comparatively competitive prices.

Strong relationship with major customersThe Group has established strong business ties with its major customers. Such customers include the largest coal producer in China. The Group has constructed Special Service Lines owned by such customers that run directly to their factories or premises from the main railway line, facilitating easier rail freight transportation. The Group has also increased its transportation volume for such customers and reinforced exclusive ties with them through the Special Service Lines.

Comprehensive business capabilities covering various aspects of the industryThe Group has developed comprehensive operating capabilities covering the various transportation and logistics needs of its customers, particularly those in coal and ore-related industries. Apart from engaging in its core rail freight transportation business, the Group also provides a range of ancillary logistics and transportation services, allowing it to further diversify its revenue, deepen and strengthen its relationship with customers and leverage existing ties to increase revenue.

Experienced and dedicated management teamThe Group is led by a management team with a comprehensive understanding of and extensive experience in the rail freight transportation industry. All members of its management team have over ten years of experience in rail freight transportation operation and management. The management team's extensive experience and knowledge of the transportation and logistics industry has helped the Group identify and secure business opportunities in the rail freight transportation market, and is essential to the continued development of the Group's business.

Future Growth Strategies

Constructing additional branch lines to expand business scale Since rail freight transportation is more cost efficient and environmentally friendly compared with road transportation, the Group will construct additional branch lines and new Special Service Lines that stretch to the following areas to capture existing and future business opportunities and to increase transportation volume. Additional branch lines to be built by the Group include:

Northern Shandong Industrial Park branch lineThe Group will construct a Northern Shandong Industrial Park branch line that connects the Gangkou Station of its railway to the Northern Shandong Industrial Park. This branch line is expected to be approximately 20.7 km. As part of the construction of this new branch line, the Group intends to build two new stations, one in Wudi County in Shandong Province and the other in the Northern Shandong Industrial Park. The northern Shandong area, where the Northern Shandong Industrial Park is located, has a number of power plants, metallurgical factories and other coal consuming companies. The construction of the branch line will help the Group capture strong demand from these companies for cargo transported by the Group, in particular, coal, bauxite and chemicals. The Group will also be able to transport coal directly to its existing and potential customers via this branch line, hence help save costs and attract new customers.

Comprehensive Industrial Park (Bohai New Area) branch lineThe Group also plans to construct a Comprehensive Industrial Park (Bohai New Area) branch line for connecting the Yangerzhuang Station of its railway to the Comprehensive Industrial Park at Bohai New Area. The Industrial Park houses a number of power plants and chemical factories with strong demand for the transportation of coal, oil and asphalt. The construction of this branch line will allow the Group to transport the cargo directly to the premises of its customers in the industrial park area of the Bohai New Area and connect to customers' factories via Special Service Lines in the future.

Special Service LinesIn order to continue attracting new customers while strengthening relations with important existing customers, the Group is currently in discussion with a number of existing and potential customers on the construction of additional Special Service Lines for connecting the Group directly to the business premises of such additional customers. In 2019, one existing customer and four potential new customers indicated interest in building Special Service Lines for connecting to the Group's Comprehensive Industrial Park (Bohai New Area) branch line. The Group has already received application letters from the five companies for building the Special Service Lines for connecting to their factories or premises.

Upgrading and increasing transportation efficiency of existing railwayIn order to support further growth and meet increasing demand for rail freight transportation services, the Group plans to modernize and upgrade its existing railway and equipment, and thereby improve transportation efficiency. Such a move includes the upgrade of railway tracks of the Canggang Railway Line, renovation of roadbed and building culverts and other necessary infrastructure, purchase of additional locomotive, and purchase of equipment to upgrade communication, signal automation and remote monitoring systems. All are set to raise the Group's overall operational efficiency and overall transportation capacity of the Canggang Railway Line.

Exploring potential for westbound transportation business and diversifying sources of incomeThe Group is exploring ways of enhancing westbound rail freight transportation, including engaging in more business for rail freight transportation of iron, manganese, bauxite and other ore from Port Huanghua to regions such as Hebei,Inner Mongolia, Ningxia and other nearby provinces. The Group has also reached out to existing customers to promote its westbound rail freight transportation services, leading to the securing of two new customers for such services in 2019, as well as construction of the Jinghai Ore Freight Yard that commenced operations in November 2019. With the commencement of services at the Jinghai Ore Freight Yard, customers can use the Group's road transportation services to transport ore from Port Huanghua to Jinghai Ore Freight Yard, where they can temporary store and load their ore to trains for further westbound rail freight transportation. The Group believes that such strategy will help it better utilize existing westbound rail freight transportation capacity to further diversify its income sources and increase revenue.

Use of Net ProceedsAssuming that the Over-allotment Option is not exercised and the Offer Price is set at HK$0.975 per share, being the mid-point of the indicative price range between HK$0.85 and HK$1.10, the Group estimates the net proceeds from the Global Offering, after deducting related underwriting fees and estimated expenses in connection with the Global Offering, will be approximately HK$199.0 million. The Group intends to use the net proceeds for the following purposes:

Purpose / PercentageConstruct two new branch railway lines: 63.3%- 39.2% will be used for constructing a branch line connecting to the Northern Shandong Industrial Park- 24.1% will be used for constructing a branch line connecting to the Comprehensive Industrial Park at Bohai New AreaFund technical upgrades, acquire new locomotive and purchase additional equipment: 20.2%- 12.9% will be used for upgrading and renovating basic infrastructure including railway tracks, the surrounding roadbed and building culverts and other necessary infrastructure - 4.8% will be used for purchasing one new locomotive- 2.5% will be used to partially cover purchase of equipment to upgrade communications, signal automation, and remote monitoring systemsPartially settle amounts payable in connection with the land use rights: 11.9%Repay bank loans: 3.1%Working capital and general corporate purposes: 1.5%

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