CSCEC shelves projects worth 5.6b yuan

PUBLISHED : Saturday, 09 January, 2010, 12:00am
UPDATED : Saturday, 09 January, 2010, 12:00am

China State Construction Engineering Corp's (CSCEC) decision to shelve at least 5.55 billion yuan (HK$6.29 billion) in planned projects is likely a harbinger of a cooling of the Chinese economy, analysts say.

The company has halted three mainland projects that it said in its initial public offering prospectus it would invest 5.55 billion yuan in, according to media reports.

CSCEC reportedly will now use about 5 billion yuan as general working capital, according to the reports. The three projects are a railway in Shandong province, a development zone in Yibin Zhicheng port in Sichuan province and a rail line between the cities of Shijiazhuang and Wuhan.

CSCEC said on Thursday that two billion yuan from the proceeds of its IPO would be used as general working capital for six months.

The state-owned firm raised 50.2 billion yuan in Shanghai last July in one of the world's biggest IPOs.

CSCEC is the mainland's largest homebuilder and also a leading infrastructure construction firm.

'Certainly the Chinese government is wary of inflation,' said Willy Lin Sun-mo, chairman of the Hong Kong Shippers' Council.

'A lot of infrastructure projects bring inflation and raise commodity prices. We will probably see the Chinese government slow down projects a bit and push back some infrastructure projects.'

A financial analyst said: 'It is likely that the Chinese government wants to slow down infrastructure projects because it fears overheating of the country's economy. And SOEs are under pressure to follow suit.'

The analyst said SOEs have more knowledge of the mainland economy and Beijing policy than private companies, as they are closer to the government.

'There is also the possibility that the company is not so optimistic about the market, so it is cautious and wants to preserve cash,' he said.

Corporate governance activist David Webb said: 'It's normal. Times change, circumstances change, so companies may have to change their plans.'

Li Zhirui, an analyst with First Capital Securities, played down the postponement of CSCEC's projects, saying the amount involved is not large compared with its 50 billion yuan IPO fund and will not have any significant impact on the company.

'The probability of the government raising interest rates in the first half is not high, but in the second half, it is possible, and it will affect funding for projects,' said Li.

One potential risk faced by CSCEC is the central government tightening monetary policy, which will affect the real estate market, said a SWS Research report.

CSCEC continues to win substantial contracts. The company recently signed 7.12 billion yuan of deals to develop infrastructure for Tongling in Anhui province, Yangquan in Shanxi province and Yunnan province.

Masterlink Securities forecasts CSCEC's net profit will soar 72.6 per cent to 9.3 billion yuan this year, while revenue will grow 19.4 per cent to 295.69 billion yuan.