Merger of KCR and MTR operations

In February 2004 the Government invited the Kowloon-Canton Railway Corporation (KCRC) and the MTR Corporation Limited (MTRCL) to commence discussions on a possible merger between the two corporations. In September 2004 the corporations submitted a joint merger report to the Government.

In April 2006 the Government and the MTRCL signed a non-binding Memorandum of Understanding on the structure and terms for the proposed merger.

In June 2007 the Legislative Council passed the Rail Merger Bill, and subsequently in July, the By-laws and regulations of the merged company were also passed. In August 2007 KCRC's Managing Board gave its approval to the signing of the merger transaction documents. In October 2007, MTRCL's independent shareholders approved the merger package at an Extraordinary General Meeting.

On 2 December 2007, the Rail Merger Ordinance came into effect. The Rail Merger Bill expressly empowers KCRC to grant service concession to MTRCL and expands the scope of MTRCL's franchise for taking up the operation of these KCRC's transport services. The franchise period would be re-set to 50 years from merger date. Upon the merger, MTRCL changes its Chinese name to 「香港鐵路有限公司」while retaining its English name, and takes up the operations of the merged KCR and MTR railway networks.

Key merger details

The rail merger comprises two key components. The first is a Service Concession Agreement whereby MTRCL is granted the right for an initial period of 50 years (which is extendable) to use KCRC's railway assets to operate the existing KCR railway lines and other transport-related businesses such as bus operations in the North-west Transit Service Area, and upon their completion, the new KCR railway lines currently under construction. In return, the MTRCL must make a fixed annual payment of $750 million to KCRC, and after 36 months, an additional variable payment based on a percentage of the annual revenue, which is on a sliding scale, generated from the KCRC railway assets.

The second component is a Sale and Purchase Agreement, whereby on 2 December 2007 MTRCL purchased at a sum of $7.79 billion a number of KCRC properties and property management subsidiaries, and made a further payment of $4.25 billion for the Service Concession and the purchase of certain short-lived railway assets of KCRC such as stores and spares.