Stagecoach in surprise exit from Hong Kong

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The Independent Online

Stagecoach, the UK bus and rail group, yesterday continued its withdrawal from overseas markets by announcing the surprise £176m sale of its Hong Kong bus operations to a local transport and property owning family.

The sale of Citybus, Hong Kong's second biggest bus operator, to the Cheng Yu Tung family's New World Development Company follows hard on the heels of the disposal by Stagecoach of large chunks of its North American bus operation, Coach USA.

Stagecoach said it had decided to sell Citybus because of the economic uncertainty in Hong Kong, growing regulatory burdens and the significant investment it would have needed to make had it hung on to the business.

The outbreak of the Sars disease, which has crippled Hong Kong, has also hit the profitability of Citybus but Stagecoach stressed that the decision to sell was based on a long-term view of the business. The Cheng Yu Tung family is understood to have approached Stagecoach before the Sars virus took off.

Stagecoach paid £181m for Citybus in 1999 and has since booked about £80m in profits from the company. The sale will net Stagecoach £132m in cash after deducting third-party debt.

Citybus's two Hong Kong franchises expire in 2006 and 2013 and Stagecoach said it would have had to put in significant investment in order to retain the franchises.

Martin Griffiths, Stagecoach's finance director, said it would have had to invest £25m in a new depot and £24m a year from 2006-07 onwards to replace its bus fleet. Tougher new fare curbs being introduced by the Hong Kong government are also expected to lower Citybus's revenues by HK$60m to HK$100m (£4.8m-£8m) a year.

Mr Griffiths also cited increasing competition from Hong Kong's new transit railway and higher environmental costs of fitting equipment such as catalytic converters to the fleet.

New World Development Company is Hong Kong's third biggest bus operator through its subsidiary New World First Bus Services. Although the takeover will reduce competition in the bus market, Mr Griffiths said there would be no regulatory obstacles to the deal going through. In any event, the sale is unconditional and Stagecoach expects it to be completed later this month.

Mr Griffiths said Stagecoach would consider selling its other Asian interest - a 32 per cent stake in the Chinese-based toll road operator Road King - if an acceptable offer was made. "It is a non-core business. If somebody approached us with the right price and the right terms we would get out," he said. The biggest shareholder in Road King is the William Zen family's Wai Kee Holdings.