Despite having been thrown a 300 billion yuan (HK$366 billion) lifeline, the mainland's cash-strapped rail sector is having to issue bonds to repay debts, and the slump in rail spending accelerated in November.
China Railway 25th Bureau Group plans to issue 200 million yuan of one-year bonds on December 22, of which 85 per cent will be used to pay off debts.
The company is a subsidiary of China Railway Group, a state-owned infrastructure construction conglomerate listed in Shanghai and Hong Kong.
China Railway 25th Bureau's gearing ratio stood at 86 per cent on September 30, which is high, according to Brilliance Rating, a mainland credit rating agency. The rail company suffered a net operating cash outflow of 79.58 million yuan in the first nine months of this year, in contrast to a net operating cash inflow of 627.48 million yuan at the end of last year, according to its bond prospectus. China Railway 25th Bureau's accounts receivable rose 35.4 per cent to 1.98 billion yuan on September 30 from 1.39 billion yuan at the end of last year, mainly because of slow payments from its main customer, the Railways Ministry.
During the first nine months of this year, China Railway 25th Bureau's new contracts plunged 56 per cent to 8.89 billion yuan, according to its prospectus. 'The main reason is the change in the pace of the nation's rail construction. This year, the value of rail project tenders by the Railways Ministry fell 90 per cent.'
Rail construction spending by the Railways Ministry in the first 11 months of this year fell 34.7 per cent to 396.32 billion yuan, a sharper decline than the 28 per cent fall in the first 10 months this year, according to the ministry's website.