CRCC slips on 8b yuan share placement plan
Shares in China Railway Construction Corp (CRCC) fell yesterday after the company announced an 8 billion yuan (HK$9.1 billion) share placement to build highways and pay for asset injections from its parent.
CRCC plans to raise the funds by placing as many as 1.03 billion new A-shares in Shanghai.
CRCC's shares fell 4.9 per cent to close at HK$9.72 in one of its heaviest trading days in Hong Kong with 40.13 million shares changing hands. Its Shanghai shares fell 2.3 per cent to finish at 8.46 yuan with 58.95 million A-shares traded.
The stock resumed trading after it was suspended on March 1.
CRCC is one of the nation's two dominant railway builders - along with China Railway Group - but it also builds other infrastructure.
The new A-shares will be issued to a maximum of 10 subscribers, including CRCC's state-owned parent, China Railway Construction Corp, which will take up to half of the 1.035 billion new shares in return for assets and cash.
The issue price for the new A-shares will be at least 7.74 yuan per share, 89 per cent of their Shanghai share price at the trading suspension.
'We expect very limited earnings dilution from the deal, as most of the assets to be acquired are profitable, and we estimate them to enhance CRCC's 2010 net profit by 7.9 per cent, which will largely offset a maximum 8.4 per cent share capital dilution,' Credit Suisse analyst Ingrid Wei said in a report.
The placement would dilute CRCC's return on equity from 12.8 per cent to 11.5 per cent, Wei wrote.
The cash portion of proceeds from this placement will be used on highway construction and renovation in Guiyang and a section of the Beijing-Shanghai expressway. The remainder will replenish working capital and repay bank loans.
The assets the parent will inject include: the Beijing Tongda Jingcheng Highway Company, the Chongqing Tiefa Suiyu Highway Company and Xianyang Zhongtie Road and Bridge Company, as well as a building in the Shaanxi capital Xian.
These assets gained 372 million yuan in 2009 and should earn 538 million yuan this year, Wei said.
'Another major objective of the placing of new A-shares is to upgrade and adjust the firm's production structure,' chairman Li Guorui said.
The placement is subject to approval by CRCC shareholders, the China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission.
