China Communications Construction shares surge on new expansion deal
Acquisition of Australian firm and inclusion of mainland mutual funds in stock connect cited in China Communications Construction's price rise
Recent sharp rises in the Hong Kong and Shanghai share prices of China Communications Construction have been attributed by analysts to the Chinese state-owned firm receiving approval to buy an Australian building firm, and to news that mainland funds can buy Hong Kong shares via the Shanghai-Hong Kong through train scheme.
China Communications Hong Kong share price surged 14.8 per cent on the day to close at HK$14.54 yesterday from HK$12.66 on April 2, while its Shanghai share price rose 8.6 per cent to end at 19.55 yuan yesterday from 18.01 yuan on Tuesday.
Australia yesterday approved the sale of one of its largest construction companies, John Holland, to China Communications.
The acquisition is "an important manifestation" of the Chinese government's one belt, one road strategy to build ports, roads, railways and other infrastructure linking China with Asia, Africa and the Middle East, said Li Xin, an analyst with Masterlink Securities.
"John Holland is a technologically advanced construction company, so the acquisition will be good for China Communications and the Chinese government," Li said.
John Holland has more than 5,600 employees in eight countries. China Communications is China's biggest dredger and port builder, with a presence in more than 80 countries.
Australian Treasurer Joe Hockey said he approved the John Holland sale because it was in Australia's national interests. Leighton Holdings, an Australian listed contractor, had entered a binding agreement with China Communications in December to sell John Holland for approximately A$1.15 billion (HK$6.85 billion), subject to adjustments.
"The government welcomes foreign investment where it is not contrary to our national interest," Hockey said in a statement.
Hockey said he had sought advice on issues including the World Bank barring China Communications from contracts until 2017 over fraudulent practices used in a road-building project in the Philippines in 2009.
"As a result, appropriate arrangements have been put in place to mitigate any concerns in relation to this issue and I am satisfied that this investment is not contrary to our national interest," Hockey said, without elaborating.
Jenny Zhen, an analyst with Haitong Securities, said recent news of the progress of the China-led Asian Infrastructure Investment Bank, a key component of the one belt, one road strategy, was a more important factor behind the recent share price rise of China Communications, because its intention to acquire John Holland was already known in the market.
"China Communications is one of the biggest beneficiaries from China's one belt, one road strategy. It builds ports and roads. The one belt, one road initiative calls for the construction of ports and roads," Zhen said.
Another reason for China Communications' rise is the recent announcement by the Chinese government that mainland mutual funds would be allowed to buy Hong Kong stocks via the through train link between the Shanghai and Hong Kong stock exchanges, said Zhen.
