China Railway Construction Corp (CRCC) is spending billions on property projects to become a major real estate player.
CRCC and China Railway Group are the two state-owned enterprises that build nearly all of the mainland's railways.
From this year to 2014, CRCC will spend 69.6 billion yuan (HK$85.7 billion) on property projects, more than the 54 billion yuan it will spend on infrastructure, including railways, said the Hong Kong- and Shanghai-listed firm's bond prospectus.
CRCC plans to issue five billion yuan of 270-day bonds, to be used as working capital.
The company's combined 123.6 billion yuan spending plan for 2012 to 2014 is larger than its earlier plan to spend 80.66 billion yuan over the next three years on infrastructure, urban development and property, as stated in its July bond prospectus.
CRCC's planned 69.6 billion yuan investment in property is substantial and would propel the railway company into the ranks of China's second-tier property developers, said an unnamed property analyst. "It's quite big but not the biggest."
In comparison, China Overseas Land and Investment, one of China's biggest property firms, will spend 20 billion yuan on land acquisitions this year alone, said the property analyst. Assuming CRCC breaks even on its property investment, it will have annual average property sales of 23.2 billion yuan over three years, the analyst said.
China Overseas' turnover last year was HK$48.58 billion.
At present, CRCC's property business is very small, said Guotai Junan Securities analyst Gary Wong. It is not among the top 20 Chinese developers, he said.
Last year, the firm's property revenue amounted to 16.95 billion yuan, a mere 3.7 per cent of its total turnover.
Despite the recent increase in the Chinese government's spending on railways, the long-term outlook for the railways sector is uncertain, Wong said.
"CRCC is forced to be a property developer because of weak rail prospects. CRCC wants to find growth, so property investment will be good."
CRCC's bond prospectus said: "The property sector is still under severe austerity measures. In the short term, the volatility in demand and prices will increase, raising the industry's risks.
"But in the long run, China's stable economic growth and urbanisation will create a booming demand in the property market," the company said.
CRCC will benefit from the policy of many local mainland governments to encourage property projects near metro rail stations, similar to Hong Kong's MTR model, said Wong.
The property revenue of the other leading Chinese railways construction firm, China Railway Group, surged 43.4 per cent to 17.14 billion yuan last year.