Mainland issues 20b yuan in rail construction bonds

Fourth such issue this year will help finance 40 construction projects, Ministry of Railways says

PUBLISHED : Tuesday, 21 August, 2012, 12:00am
UPDATED : Tuesday, 21 August, 2012, 3:56am

In a sign that the mainland's rail spending is reviving, the Ministry of Railways is to issue another 20 billion yuan (HK$24.44 billion) of medium-term bonds - its fourth such issue this year.

The ministry will issue 10 billion yuan of 10-year bonds today, along with 10 billion yuan of 15-year bonds, to partially finance 40 railway projects.

The National Development and Reform Commission (NDRC) recently gave the debt-ridden ministry special permission to issue a total of 150 billion yuan of rail construction bonds to finance 61 rail projects this year, breaching the government's own maximum bond issuance limit.

"Without the NDRC's approval of 150 billion yuan in issuances, the ministry could not have issued bonds from now on," J. P. Morgan analyst Karen Li said.

The government did not permit the ministry's bond issuance to exceed 40 per cent of its net asset value, but the breach was allowed after the NDRC's green light, Li said.

As of March 31, the ministry's net asset value was 1.58 trillion yuan, which means its total outstanding bond issuance should not exceed 631 billion yuan, according to official data. Excluding this 20 billion yuan planned bond issue, the ministry's outstanding bond issuance already totals 652 billion yuan, according to its bond prospectus.

However, the government is broadening rail financing beyond the ministry with a 1,837 kilometre coal railway from Inner Mongolia to the central part of the mainland, HSBC Securities analyst Anderson Chow said. This 154 billion yuan project, which will take about five years to complete, is the country's second most expensive rail project after the Beijing-Shanghai high-speed railway, Chow said.

"More non-Railways Ministry money is coming into rail projects. This is a step in the right direction for rail financing," he said. This was the first time the ministry had taken a minority stake in a major project, the HSBC report added.

On Thursday, Hong Kong-listed coal company China Coal Energy announced forming a joint venture called Mengxi-Huazhong Railway with the ministry and 14 other companies to build and operate the coal railway.