Beijing backs 200b yuan boost for railways ministry

PUBLISHED : Wednesday, 02 November, 2011, 12:00am
UPDATED : Wednesday, 02 November, 2011, 12:00am


Beijing has endorsed a 200 billion yuan (HK$244.6 billion) lifeline for the cash-starved Ministry of Railways, raising hopes that the finances of beleaguered mainland rail construction companies will look up.

Yesterday, Xinhua's website reported that the ministry would soon obtain the financial support to help it pay its debts and complete major railway projects. Although other mainland media had previously reported the 200 billion yuan figure, this was the first time a major official state media outlet such as Xinhua had commented on it.

'Various signs indicate the rail funding shortage will be greatly alleviated with government support. Even though our nation's rail financing currently faces a shortfall, the state financial departments will continue to support our country's rail development,' said the Xinhua report.

'Definitely, CSR will continue to get more money in future,' Shao Renqiang, secretary of the board of directors of CSR Corporation, told the Post.

Yesterday, the Shanghai and Hong Kong-listed CSR - a leading state-owned rolling stock manufacturer that makes high-speed trains - announced it had received approval from the State-owned Assets Supervision and Administration Commission to raise 9 billion yuan from a private share placement to several buyers, including its state-owned parent CSR Group. The planned placement still needs the approval of the China Securities Regulatory Commission.

On Monday, CSR announced it had received, on the same day, 6 billion yuan of payment of its dues from the ministry, which is likely to improve the company's financial position. Total debt due to CSR stood at 35.1 billion yuan as of June 30.

CSR's fourth-quarter earnings were expected to improve from the previous quarter, said a SinoPac report. 'The policies lately introduced to support financing for railway construction has put the railways ministry in a healthier financial state,' it said.

SWS Research expects CSR's sales to rise from the third quarter to 20.6 billion yuan in the fourth quarter.

'In the fourth quarter, equipment purchases in the railway sector are expected to speed up due to [government] macro policies. Accounts receivable of [rail] equipment producers are expected to improve,' a SWS Research report said.

CSR's Hong Kong stock rose 6.4 per cent to HK$5 yesterday.

The railways ministry plans to issue 100 billion yuan of bonds in the fourth quarter, of which 40 billion yuan have been issued. The bond issue would enable the ministry to pay China Railway Group and CRCC, the two dominant rail construction firms, as well as other rail companies, said James Chung, an analyst with MasterLink Securities.

'The balance sheets of China Railway Group and China Railway Construction Corporation [CRCC] will definitely improve in the fourth quarter,' Chung said.

Last week, the railways ministry issued 10 billion yuan of seven-year bonds and 10 billion yuan of 20-year bonds.

The seven-year bonds, carrying an interest rate of 4.93 per cent, were 16.9 times oversubscribed.

The 20-year ones, with an interest rate of 5.33 per cent, were 3.7 times oversubscribed.