April 7 (Bloomberg) -- The Hong Kong government, which is proposing a merger of the city's two rail operators, said it's close to making a decision on whether to combine publicly traded MTR Corp. with Kowloon-Canton Railway Corp.
Talks between the government, which holds all of Kowloon- Canton, and subway operator MTR are in their ``final stages,'' MTR's spokeswoman May Wong and the Environment, Transport and Works Bureau's spokeswoman Joyce Yip said by telephone today. Yip declined to say when an announcement may be made.
MTR and Kowloon-Canton have held talks with Hong Kong's government since a 2004 announcement to combine the two companies. The government is proposing that MTR leases Kowloon-Canton's assets before a full merger takes place, the South China Morning Post said today, citing unidentified people close to the talks.
Under the latest plan, MTR would pay the government HK$6 billion ($773 million) to use Kowloon-Canton's assets, and an annual rent of HK$500 million, the Hong Kong-based English- language newspaper said. The subway operator will run Kowloon- Canton's services for 20 years, with a right to buy them after that, the report said.
Yip, the government spokeswoman, and Wong at MTR declined to comment on the report. Jeff Leung, a spokesman for Kowloon-Canton, declined to comment.
Both MTR and Kowloon-Canton subsidize their rail networks with property developments. MTR, which runs a 91-kilometer network with 52 stations, posted an 8.8 percent increase in second-half profit, helped by income from real estate projects and a revaluation of its property holdings.
Net loss from its railway business narrowed to HK$16 million in 2005 from HK$317 million a year earlier, MTR said. Kowloon- Canton has yet to publish its 2005 results.
Kowloon-Canton received a government warning in January after a delay in reporting faulty train parts. The company's acting chief executive officer resigned last month after a rift with the chairman.
The government sold MTR shares in the rail operator's initial public offering in 2000. MTR stock was trading 0.3 percent higher at HK$18.30 at 11:35 a.m. in Hong Kong.