CORRECTED-UPDATE 2-Veolia strikes deal for Hong Kong Tramways

Tue Apr 7, 2009 8:45am EDT

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(Corrects to remove references to loss-making in 9th paragraph and subhead))

* Veolia to buy 50 pct of HK tram operator

* No financial details given

* To operate tram on daily basis

* Has option to buy remainder of company (Adds details, background)

By Stephen Aldred and Sui-Lee Wee

HONG KONG, April 7 (Reuters) - French water, waste and transportation giant Veolia Environnement (VIE.PA) will buy 50 percent of Hong Kong's iconic tram system and take over operation of the 105-year-old network under a deal unveiled on Tuesday.

Veolia said it has the option to buy the remaining stake in the tram operator from conglomerate Wharf Holdings (0004.HK), confirming a Reuters report, but has no immediate plans to do so.

Bruno Charrade, head of operations for Veolia Transport China, said running the Hong Kong tram would help provide know-how as it builds an urban rail business in China.

"Operating the light rail system in Hong Kong will give us the knowledge and expertise in mainland China. That's strategically why we chose to start in Hong Kong," he told a news conference.

Hong Kong's slow-moving and frequently stopping trams have been eclipsed by the city's modern subway system, but still attract an average of 230,000 passengers a day, who pay just HK$2 (about 26 cents) per ride.

Fares have not been raised for 11 years, while passenger numbers are up 4.7 percent in the six months from October.

Like the Star Ferry, which is also run by Wharf, Hong Kong's tram system is a popular tourist attraction.

No financial details were available for the deal, but it was expected to be relatively small for both Wharf and Veolia. Wharf reported an overall turnover of $2 billion last year. Veolia was advised by Societe Generale (SOGN.PA), a source with direct knowledge of the deal said.

The tram generated just HK$150 million ($19 million) in passenger fares last year and an additional HK$50 million in advertising revenue.

Its 161 passenger trams, which stop an average of every 250 metres, make up the largest fleet of double-decker tram cars in the world, according to the firm's website, www.hktramways.com.

The clattering tram is technologically primitive compared with the high-speed passenger rail venture Veolia is contemplating with partner Air France-KLM.

Shares in Wharf ended about 4.8 percent lower on Tuesday, underperforming the 0.46 percent fall in the Hang Seng Index .HSI, although one analyst said the tram deal is too small to have had an impact on Wharf's price.

Besides the Star Ferry, Wharf controls Hong Kong cable TV firm I-Cable Communications and owns office buildings, shopping malls and container terminals. (US$=HK$7.8) (Additional reporting by Alison Leung; Writing by Tony Munroe; Editing by Ken Wills, Anshuman Daga and Erica Billingham)

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