Belt and Road set to deliver significant boost to China Railway

Company likely to see overseas revenue grow to 7-8pc of total turnover within three years, says Moody’s

PUBLISHED : Sunday, 14 August, 2016, 3:58pm
UPDATED : Sunday, 14 August, 2016, 10:47pm

Analysts expect China Railway Group to receive a bigger proportion of its revenue from overseas operations, as the state-owned construction company starts building projects under the state-led “One Belt, One Road‘ initiative.

Continued overseas expansion will help support annual revenue growth of between 3 and 4 per cent in the coming two years, credit rating agency Moody’s said in a note.

China Railway is the latest Chinese company to benefit from the ‘One Belt, One Road’ initiative, which involves building major construction and communications projects along the ancient trade routes between Asia and Europe.

The company announced last week it had won a US$3.1 billion project to build a rail network in Bangladesh. The line will connect capital Dhaka to southwestern city of Jessore, a distance of 168.6 kilometres.

The contract size represents 3.3 per cent of China Railway Group’s latest audited operating revenue, the company said.

“This contract award demonstrates the company’s strong capabilities with cutting-edge technologies in railway, bridge and tunnel construction to win large-scale and complex projects,” Chenyi Lu, a Moody’s vice president and senior analyst, said in the note after the deal was announced.

[The $3.1b Bangladesh project] demonstrates the company’s strong capabilities with cutting-edge technologies in railway, bridge and tunnel construction to win large-scale and complex projects
Chenyi Lu, a Moody’s vice president and senior analyst

As the company enters foreign markets, its overseas revenue will grow to 7 to 8 per cent of total turnover in the next three years from about 5 per cent in 2015, Moody’s said.

China has accelerated its rail expansion abroad after it launched the “One Belt, One Road” programme in 2013 to rebuild Silk Road trade links. The projects are carved up by two state-run train makers, China Railway Group and China Railway Construction Corp.

Both listed in Hong Kong and Shanghai, the construction giants cover a range of businesses including building and operating rail lines, highways and bridges, as well as developing property and mines.

Thanks to a surge in overseas deals, China Railway now ranks first in the top 250 global contractors, while China Railway Construction comes in third, according to industry analyst ENR.

A consortium involving China Railway beat European competitors in winning a recent bid to operate a rail line linking Ethiopia and Djibouti, after the two Chinese builders completed the US$4 billion project, according to state-run Xinhua News Agency.

Last year, another consortium led by China Railway was granted a US$1.6 billion contract to build the Hungarian section of a railway linking the capital Budapest with Serbia’s Belgrade, in China’s first high-speed rail win in the European Union.

Closer to home, the government is seeking to build the vast Trans-Asian Railway Network, which will link China with Southeast Asia. Some of the governments involved have already awarded their rail projects to Chinese firms, and Beijing is persuading others to do the same.

A high-speed railway in Indonesia is being built by a joint venture formed by China Railway International, a subsidiary of China Railway, and Indonesian firms. The 150-kilometre, US$5.1 billion line is expected to be completed in 2019.

China Railway is competing with a consortium led by East Japan Railway Co, also known as JR East, to build a high-speed rail network connecting Singapore and Malaysia.

In 2015, the company’s overseas contracts passed the US$10 billion mark for the first time, according to its annual report.

Chairman Li Changjin said in April the group signed 30 per cent more overseas contracts in 2015, and aims to increase the proportion of overseas revenue to more than 10 per cent by 2020.

Shares in China Railway have risen by 6.5 per cent this year, performing better than the 3.9 per cent gain in the Hang Seng Index over the same period. Shares of China Railway Construction have climbed 4.9 per cent in the same period.