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RESIDENT PARTNERS
Lee Edwards
Alan D. Seem
Admitted in New York
Writer's Email Address: December 19, 2008
alan.seem@shearman.com
Writer's Direct Number:
Tel: +86.10.5922.8002
Fax: +86.10.6563.6002
VIA EDGAR & FACSIMILE
Mr. Juan Migone
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-3561
Tel: +1.202.551.3312
Fax: +1.202.772.9202
RE: GUANGSHEN RAILWAY COMPANY LIMITED
FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2007
FILED JUNE 26, 2008
FILE NO. 001-14362
Dear Mr. Migone:
Guangshen Railway Company Limited (the "Company") has requested us to
respond to the Staff's comment letter, dated November 18, 2008, with respect to
the Company's annual report on Form 20-F for the fiscal year ended December 31,
2007 ("Form 20-F") filed with the Securities and Exchange Commission (the
"Commission") on June 26, 2008.
The Company's responses to the Staff's comments are set forth below. The
numbered paragraphs below correspond to the numbered paragraphs of the Staff's
comment letter, which have been retyped herein in bold for your ease of
reference. Also enclosed herein as Annex A is the written acknowledgment from
the Company requested by the Staff.
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PERSONAL LIABILITY OF PARTNERS.
Page 2 December 19, 2008
FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
ITEM 18-FINANCIAL STATEMENTS
NOTE 38-THE ACQUISITION OF THE NET ASSETS OF YANGCHENG RAILWAY, PAGE F-56
1. WE NOTE YOUR ASSERTION THAT, AS A RESULT OF THE DILUTION TO 41% (FROM
67%) OF THE EQUITY INTEREST OF THE MOR IN THE GROUP IN DECEMBER 2006,
YANGCHENG RAILWAY AND THE GROUP WERE NO LONGER UNDER COMMON CONTROL ON
THE ACQUISITION DATE OF JANUARY 1, 2007. ACCORDING TO APPENDIX A OF
IFRS 3, CONTROL IS DEFINED AS THE POWER TO GOVERN THE FINANCIAL AND
OPERATING POLICIES OF AN ENTITY SO AS TO OBTAIN BENEFITS FROM ITS
ACTIVITIES. IN THIS REGARD, DISCLOSURES THROUGHOUT YOUR FILING
DESCRIBE THE EXTENSIVE GOVERNMENT REGULATION OF THE RAILWAY
TRANSPORTATION INDUSTRY AND THE SIGNIFICANT CONTINUING INFLUENCE OF
THE MOR OVER YOUR POLICIES, MANAGEMENT AND AFFAIRS. WE ALSO NOTE THE
COMPOSITION OF YOUR BOARD OF DIRECTORS (SIX NON-INDEPENDENT DIRECTORS
AND THREE INDEPENDENT DIRECTORS) WAS THE SAME BOTH BEFORE AND AFTER
THE DECEMBER 2006 OFFERING. IN ADDITION, THE CHAIRMAN OF YOUR BOARD OF
DIRECTORS IS THE CHAIRMAN OF GRGC, A SUBSIDIARY OF THE MOR. THEREFORE,
IT IS UNCLEAR WHETHER OR NOT THERE HAS BEEN ANY SUBSTANTIVE CHANGE IN
THE MOR'S POWER TO GOVERN YOUR FINANCIAL AND OPERATING POLICIES AFTER
THEIR EQUITY INTEREST WAS DILUTED. PLEASE CLARIFY YOUR DISCLOSURES IN
THIS REGARD. IN YOUR RESPONSE, PLEASE PROVIDE US WITH SPECIFIC
EXAMPLES OF CHANGES IN THE MOR'S POWER AS A RESULT OF THE DECEMBER
2006 OFFERING (OTHER THAN THE DILUTION OF THEIR OWNERSHIP INTEREST IN
THE GROUP).
The Company respectfully submits that management acknowledges the
significance and importance of the accounting treatment relating to
the acquisition of the railway transportation business of
Guangzhou-Pingshi Railway from Yangcheng Railway (the "Acquisition").
Therefore, before the completion of the Acquisition, the Company
submitted a pre-clearance request with the Commission on the proposed
accounting treatment (i.e., purchase accounting) under both IFRS and
U.S. GAAP in August 2006. After several rounds of communications
between the Company and the Staff on this matter, the Company formally
filed a pre-clearance letter with the Commission on January 26, 2007,
addressed to the Accounting Group--Interpretations at the Office of
the Chief Accountant of the Commission, which letter elaborated the
management's views on the appropriate accounting treatment to be
adopted for the Acquisition. The Company would be happy to provide a
copy of such letter for your reference at your request. On February 6,
2007, the Company was informed that the Staff did not object to the
Company's proposed use of purchase accounting for the Acquisition.
The Company would also like to emphasize that the public railway
transportation business operated by the Company is highly regulated on
a nationwide basis by the MOR. After the December 2006 offering, the
MOR is still the industry regulator for maintaining safety standards
and service quality (as it has always been), but it is not considered
by the management as a shareholder that has control as defined in
Appendix A of IFRS 3. Being the regulator of a specific industry does
not implicate that the regulator has any control (as defined in
Appendix A of IFRS 3) over the enterprises under its regulation.
Page 3 December 19, 2008
In response to the specific comments made by the Staff, the Company
respectfully submits the following specific examples of changes in the
MOR's power (other than dilution of the ownership interest) as a
result of the December 2006 offering:
- Based on communications made between the Company and the MOR,
management understands that the MOR has also recognized its loss
of control over the Company as a result of the dilution of its
ownership interest in the Company, which is evidenced by the fact
that the MOR excluded the Company's financial statements from its
consolidated financial statements after the December 2006
offering.
- Subsequent to the December 2006 offering, the MOR did not
exercise any control (as defined in Appendix A of IFRS 3) over
the Company's financial and operating policies. For example,
according to the Articles of Association of the Company, both the
annual budget and the profit distribution plan (which are
substantial participating actions to evidence control exercised
over an entity) are proposed by the management of the Company and
are required to be approved by the shareholders. According to the
Articles of Association of the Company, in general, the Company
can only hold a shareholders' meeting if shareholders holding at
least 50% of the equity interests in the Company attend the
meeting, and an ordinary resolution at the shareholders' meeting
must be approved by shareholders representing more than 50% of
the voting rights represented by the shareholders present at the
shareholders' meeting (in the case of a special resolution, it
must be approved by more than two-thirds of the voting rights
represented by the shareholders present at the shareholders'
meeting). Because the MOR indirectly owns approximately 41.0% of
the equity interests of the Company after the December 2006
offering, it no longer has the power to hold a shareholders'
meeting and approve the annual budget and profit distribution
plan based on its own votes. The attendance of the shareholders
other than the MOR are required to hold a shareholders' meeting
and votes from these shareholders may also be required in order
to approve the annual budget and profit distribution plan at the
shareholders' meeting. However, prior to the December 2006
offering, the MOR was able to control the outcomes of such
processes due to the fact that it indirectly owned approximately
67% of the equity interests in the Company.
- In addition, according to the Articles of Association of the
Company, the election of any directors into the Board of
Directors of the Company is also required to be approved by the
shareholders. As described above, because the MOR now indirectly
holds less than 50% of the equity interests in the Company, it
cannot validly hold a shareholders' meeting by itself and cannot
control the voting results for the election of the directors.
However, prior to the December 2006 offering, the MOR could
control the composition of the Board of Directors due to the fact
that it indirectly owned approximately 67% of the equity
interests in the Company.
- Subsequent to the December 2006 offering, the Company is
responsible for its own financing arrangements. Prior to the
December 2006 offering, the MOR provided the necessary financial
support to the Company. Subsequent to the December 2006 offering,
the Company has borrowed significant funds from
Page 4 December 19, 2008
various commercial banks in order to finance its capital
expenditures, including the construction of its new railway line.
The MOR did not provide any support or guarantee for such bank
borrowings or any other financial support to the Company.
Therefore, the Company continues to believe that, after the December
2006 offering, from the perspective of the IFRS 3 application, the MOR
no longer has control over the financial and operating policies of the
Company, and the use of purchase accounting for the Acquisition is
appropriate.
Finally, in response to the Staff's request on clarifying the
disclosure in this regard, the Company will accordingly revise the
relevant disclosures based on the above information in future filings
made with the Commission to better reflect the changes in the MOR's
control over the Company.
2. WE NOTE YOUR DISCLOSURE REFERENCING THE ASSISTANCE OF AN INDEPENDENT
APPRAISAL FIRM. IF YOU ELECT TO MAKE REFERENCE TO AN INDEPENDENT OR
THIRD-PARTY VALUATION OR APPRAISAL, YOU MUST SPECIFICALLY IDENTIFY THE
APPRAISER IN YOUR REPORT. PLEASE REVISE ACCORDINGLY OR DELETE ANY SUCH
REFERENCE FROM YOUR FILINGS. IN ADDITION, IF YOU INCORPORATE A REPORT
WITH SUCH A REFERENCE INTO ANY REGISTRATION STATEMENT, THE APPRAISER
MUST BE IDENTIFIED AS AN EXPERT IN THE REGISTRATION STATEMENT AND HIS
CONSENT MUST BE FILED AS AN EXHIBIT PURSUANT TO ITEM 601(B)(23) OF
REGULATION S-K.
The Company respectfully submits that the appraisal performed by the
independent appraisal firm was only one of the tasks that the Company
had requested to be completed before the Acquisition in order to
assist the directors of the Company to determine the fair values of
the respective identifiable assets and liabilities and contingent
liabilities acquired. The appraisal results were only one of the
references used in determining the purchase price allocation for the
Acquisition. The directors of the Company understand that it is
management, not the external appraisal firm, that should be
responsible for the determination of the fair values. The reference to
the independent appraisal was made in the Form 20-F in order to
demonstrate that the directors had taken customary steps in order to
formulate and arrive at their final determination of the fair value.
However, such appraisal was not in itself determinative of the
purchase price allocation for the Acquisition. Therefore, the Company
did not specifically identify the appraiser in the Form 20-F. The
Company will delete such reference to the appraisal firm in any future
filings to be made with the Commission.
Page 5 December 19, 2008
* * * *
Please direct any questions concerning this letter to the undersigned at
(Tel) +86.10.5922.8002, (Fax) +86.10.6563.6002 or Mr. Wilson Chow of
PricewaterhouseCoopers, the independent auditors of the Company, at (Tel)
+86.755.8261.8886.
Very truly yours,
/s/ Alan Seem
----------------------------------------
Alan Seem
Annex A - Written Acknowledgment
cc: Mr. David R. Humphrey, Branch Chief
Securities and Exchange Commission
Mr. Tang Xiangdong
Mr. Guo Xiangdong
Guangshen Railway Company Limited
Mr. Wilson Chow
PricewaterhouseCoopers
ANNEX A
Statement of Guangshen Railway Company Limited
The undersigned, on behalf of Guangshen Railway Company Limited (the
"Company"), hereby acknowledges that (i) the Company is responsible for the
adequacy and accuracy of the disclosure in the Company's filings, (ii) staff
comments or changes to disclosure in response to staff comments in the Company's
filings reviewed by the staff do not foreclose the United States Securities and
Exchange Commission (the "Commission") from taking any action with respect to
the Company's filings, and (iii) the Company may not assert staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
GUANGSHEN RAILWAY COMPANY LIMITED
By: /s/ Tang Xiangdong
------------------------------------
Name: Tang Xiangdong
Title: Chief Accountant
Date: December 19, 2008