Rail shares fall in HK as ministry posts loss
Hong Kong shares of mainland rail firms fell after reports that the Ministry of Railways suffered a loss in the first quarter.
China Railway Group shares dived 4.6 per cent to HK$2.88 yesterday, while China Railway Construction Corporation (CRCC) dropped 3.2 per cent to HK$6.08, and CSR Corporation dipped 0.5 per cent to HK$6.18.
The ministry posted a loss of 6.98 billion yuan (HK$8.6 billion) in the first quarter.
Last year, the ministry made a profit of tens of millions of yuan, said MasterLink Securities analyst James Chung.
The first-quarter loss stemmed from the large interest payments the ministry had to make on its huge debts, Chung said.
The leverage ratio of the ministry now stood at 60.62 per cent, up from 59.6 per cent on September 30 last year, while its long-term bank loans now totalled 1.9 trillion yuan, he said.
'The Railways Ministry's debt and gearing keep rising, so its interest payments keep rising,' Chung said.
'The ministry's losses will increase when more high-speed rail projects get completed and begin operations. High-speed rail projects will lose money.'
Apart from the Beijing-Shanghai high-speed railway, virtually all such projects on the mainland were losing money, he said.
'Beijing must intervene and manage the Railways Ministry's debt,' Chung said. 'There's no way the ministry can repay its debt by normal means. The train fares are not high enough to repay the debt.'
A possible way of resolving the debt was to transfer it to asset management firms, as Beijing did with mainland banks' bad debts, Chung said.
Calls from the ministry since 2005 for more rail investments from the private sector had met with a poor response, he said.
Railway funding on the mainland remains dominated by bank loans and government funds, with little private financing.
'For private firms to invest in railways, the Railways Ministry must be much more transparent, but the ministry is not willing to be so,' Chung said. 'Private firms are unsure if they can recover costs, the payback time is very long and the risks high.'
Guotai Junan Securities analyst Gary Wong was however more optimistic. 'The feedback from China Railway and CRCC is that the Railways Ministry has secured the funding necessary to complete the 500 billion yuan fixed-asset investment in railways targeted this year,' Wong said.
Even so, fixed-asset investment in railways plunged 51 per cent to 59.6 billion yuan in the first quarter, the ministry said.
