Death raises concerns over railway firm's debt
Celine Sun and Raymond Li in Beijing
The sudden death of China Railway Group's president has triggered investor concerns over the heavy debt burden of the nation's railway builders, which analysts say will be hard to shake off in the near term.
Shares in China Railway Group, a dual-listed state-owned engineering giant, fell up to 7 per cent in Hong Kong and up to 5 per cent in Shanghai yesterday after the company said its president, Bai Zhongren, died of "an accident" over the weekend.
The 53-year-old executive was reported to have been suffering from depression and jumped to his death on Saturday, according to mainland media.
The company's stock closed at HK$3.75 in Hong Kong, down 4.1 per cent, while the A share fell 4.2 per cent to 2.51 yuan (HK$3.18).
"The market overreacted," said Gary Wong, analyst at Guotai Junan analyst.
He said the stock plunge reflected investors' concerns on both the debt problem in the railway industry and Beijing's green light to restart initial public offerings.
China Railway Construction Corp, the country's other major railway builder, also dropped more than 7 per cent yesterday before closing down 3.8 per cent at HK$7.07.
Analysts said the debt-asset ratios of the two largest railway builders had crossed 80 per cent in recent years as they take on more BT (build transfer) projects.
"The cash flow is tight," said Wang Mengshu, an academic at the Chinese Academy of Engineering. "There have been many instances when they couldn't recover the project cost or were stuck in disputes with local governments, pushing up costs."
He said some of the projects of the two companies haven't even been able to pay employees salaries for three months.
China Railway Group spokesman Yu Tengqun was quoted by the China News Service yesterday as saying the company's debt risk is under control. Its chairman will assume the responsibilities of the president until a replacement is appointed.
China Railway Group had total assets of 626.5 billion yuan and outstanding debt of 531.9 billion yuan at the end of September, with a debt-asset ratio of almost 85 per cent. China Railway Construction reported an 85 per cent debt-asset ratio as of September.