CRCC falls 18.5pc on project halt

The share price of China Railway Construction Corp (CRCC) fell 18.47 per cent to HK$7.99 yesterday, after the rail construction giant announced the Nigerian government had taken over the firm's US$8.3 billion project in the African country.

The state-owned firm's Shanghai share price fell 9.2 per cent to 7.77 yuan (HK$8.80).

Judging by the large share price drop, 'the market has written off this project. The market is assuming the project is cancelled, not suspended', said Macquarie analyst Anderson Chow.

The Nigerian Ministry of Transportation requested a 'temporary suspension' of the project until the contract was redefined, which would take 90 days, China Railway Construction said.

However, Li Pan, an analyst at BOC International, wrote in a research note: 'We see a high probability that the project will shrink in size.'

The takeover of the Lagos-Kano railway modernisation project was driven by economic and political reasons, Mr Chow said.

Falling oil prices had hurt the ability of the Nigerian government to finance the project, he added.

'China Railway Construction cannot solve the financing issue, as it is not going to lend the Nigerian government billions of dollars.'

The Nigerian Minister of Finance was quoted by the media as saying falling crude oil prices would have a serious impact on the national budget. Oil accounts for most of Nigeria's export earnings and government revenue.

A Beijing analyst estimated the halt in the project would cut China Railway Construction's earnings by 4.8 per cent next year and 8 per cent in 2010.