Analysts have hailed the sale of a loss-making light rail project in Saudi Arabia by China Railway Construction Corp (CRCC) to its parent company as beneficial for the firm's shareholders.
On Friday, CRCC sold the light rail project in Mecca to its state-owned parent of the same name, which owns 61.33 per cent of CRCC, for 2.08 billion yuan (HK$2.46 billion), CRCC told the Hong Kong and Shanghai stock exchanges. CCRC is listed on both exchanges.
As a result, CRCC will bear no more than 1.385 billion yuan of the project's losses. It will pass on to its parent all further losses plus all the risks and responsibilities for the Mecca railway, as of October 31 last year.
On October 25, CRCC - one of China's largest railway builders - announced that its losses from the Mecca project could be as much as 4.15 billion yuan.
'This will be good for shareholders. This puts the loss-making project behind them,' Anderson Chow, head of infrastructure research for Asia at Macquarie, said.
'This decision appears positive, as it gives better protection to CRCC's minority shareholders, and should go down well with the market given the stock previously fell on the write-off announced in October 2010,' Karen Li, a JP Morgan analyst, said. CRCC said the deal may help cut further losses from the project or even achieve a turnaround for the project.