Rail ministry's debts bring biggest freight fees rise in a decade

Biggest increase in tariffs for a decade lifts share prices of rail companies as railways ministry battles massive debt burden

PUBLISHED : Thursday, 21 February, 2013, 12:00am
UPDATED : Thursday, 21 February, 2013, 6:07am

The crushing debt burden of the Ministry of Railways has compelled Beijing to impose the biggest rise in rail freight tariffs in a decade.

Although that may be bad news for freighters, it came as welcome news on the stock market, where the Hong Kong share price of Guangshen Railway, a freight and passenger rail company operating in Guangdong province, rose 13.5 per cent from HK$3.27 last Friday to HK$3.71 yesterday.

The Shanghai share price of Daqin Railway, a coal rail operator, rose 8.8 per cent from 7.28 yuan last Friday to 7.92 yuan on Monday, before being suspended on Tuesday; and shares in China Railway Tielong Container Logistics, a rail container operator, ended at 7.75 yuan yesterday, 2.6 per cent lower than Monday but 15 per cent above its price on February 4.

The rate rise will increase Daqin's revenue by about 1.6 billion yuan (HK$1.97 billion) this year, the Shanghai-listed firm announced. Its turnover was 43.5 billion yuan in 2011.

With effect from yesterday, the railways ministry and the National Development and Reform Commission raised the rail freight tariff by 13 per cent, the largest increase since 2003, a report from Nomura said.

Macquarie analyst He Saiyi said the railways ministry's debt burden was rising and its gearing ratio was beyond control, requiring it to generate more income.

"The fact that they raised the tariffs higher than expected shows how desperate they are for cash," she said.

James Chung, an analyst at Masterlink Securities, said: "This is necessary. The railways ministry's debt is very large."

As of September 30 last year, the railways ministry's debt was 2.6 trillion yuan and its gearing ratio stood at 61.8 per cent, Chung said.

Freight charges accounted for 50 to 70 per cent of the ministry's revenue, and last year it collected 320 billion yuan in freight revenues, only slightly above its repayment of principal and interest of 300 billion yuan, he said.

Citi upgraded its recommendation on Guangshen from "neutral" to "buy". Its report said: "Guangshen will benefit in future from the continuous increase in mainland rail freight rates and the growth of its operating costs will moderate."

In 2011, Guangshen's freight revenue was 1.39 billion yuan, accounting for 9.44 per cent of total revenue, the firm announced.

He Saiyi said mainland freight rates would continue to increase in the next few years.

However, analyst Geoffrey Cheng at Bocom International said he expected Guangshen to report flat growth in freight revenue last year because of lower volumes. He maintained a "sell" rating on the company.