CRCC will roll HK$99b into railways

PUBLISHED : Saturday, 14 July, 2012, 12:00am
UPDATED : Saturday, 14 July, 2012, 12:00am

State-owned China Railway Construction Corporation (CRCC) plans to spend 80.66 billion yuan (HK$99 billion) on infrastructure, urban development and property in the next three years, its bond prospectus says.

And the Shanghai- and Hong Kong-listed firm plans to issue 10 billion yuan of one-year bonds, its biggest bond issuance since 2009 - further evidence that Beijing is moving to stimulate the sluggish economy.

'The company's shortfall in working capital is rather large. This 10 billion yuan bond issue will be entirely used for working capital, including the procurement of steel, cement and gravel,' the prospectus said.

CRCC builds nearly half of the mainland's railways and is also engaged in mining, road-building and property development. It is No111 among the Fortune 500 global firms.

After a sharp drop late last year and early this year, Beijing's rail spending is picking up. Fixed-asset investment in railways was 48.1 billion yuan in June, up from 40 billion yuan in May and 12.3 billion yuan in January, according to the Ministry of Railways. 'Premier Wen Jiabao again reiterated rail projects must be implemented well, leading the market to believe rail construction projects will accelerate in the second half, which should benefit rail-related stocks,' said a Kingston Securities report on Thursday.

On Tuesday, Wen said shoring up China's slowing economy was a top priority and policies to boost growth included encouraging investment.

In the first half of the year, the total value of CRCC's new contracts rose 30.4 per cent to 104.8 billion yuan, of which 87.4 billion yuan was domestic contracts and 17.4 billion yuan overseas deals, according to its prospectus. Recent international contracts include a US$941 million expressway in Nigeria and a US$505 million rail deal in Djibouti. On March 5, CRCC and Tongling Nonferrous Metals Group signed a contract to develop a copper mine in Ecuador. The two Chinese firms have a 50-50 share in the mine, which will need total investment of 15.67 billion yuan. CRCC is also hoping to win contracts for the 530 kilometres of light rail expected to be built in mainland cities over the next few years, with an investment of 560 billion yuan, its prospectus said.

But it warned that 'such a huge investment can increase the company's debt burden and weaken its debt repayment ability. Our gearing ratio is rather high, which may negatively affect its financial condition and profitability'.

The firm's gearing ratio stood at 84.29 per cent on March 31.

'The company's debt has risen quickly, while its debt repayment ability has decreased,' said China Chengxin International Credit Rating. CRCC's gross debt rose 81.87 per cent to 97.2 billion yuan last year, which mainly comprised short-term borrowings, said Chengxin.

Although rail spending accelerated, fixed-asset investment in railways was down 36.1 per cent year-on-year at 177.75 billion yuan in the first half, the railways ministry said.

48.1b yuan

Fixed-asset investment in railways was this much in June - up from 40 billion yuan in May and 12.3 billion yuan in January