A 0.1% Rise in Interest Rates Results in a “300 Million Yen Gain.” Fortunately for the Toyo Rapid Railway, passenger numbers began to rise due to a series of high-rise apartment building projects along its line, and the company has maintained a stable profit since fiscal year 2010. Toho Rapid Railway, which transformed this area into a “one-hour commute to the city center,” is widely recognized for the significant role it has played in society as a commuter railway—even while carrying a massive amount of interest-bearing debt. However, the current problem is that annual interest payments—amounting to as much as 1 billion yen—are weighing heavily on the company, compounded by its interest-bearing debt. Furthermore, since a 0.1% rise in the interest rate would increase annual interest payments by approximately 300 million yen, the future of the Toyo Rapid Railway is now fraught with risk under the current administration, which is seeking to break away from the prolonged period of low interest rates. With current interest rates at around 1.7%, calculations show that if rates rise by even 2% or more, the company’s 5 billion yen in operating profit would vanish. If that happens, the company will be in no position to replace its increasingly aging fleet of trains, let alone lower fares—which currently stand at 640 yen for the approximately 16-kilometer stretch between Toho-Katsutadai and Nishi-Funabashi, double the rates charged by the parallel JR and Keisei lines. Whether considering the present or the future, there is only one solution. That is to reduce the remaining construction costs—i.e., interest-bearing debt—through measures such as debt reduction or refinancing.
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