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Home >> Business
UPDATED: 15:30, July 24, 2006
China plans to auction one unprofitable state-owned railway
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A 62-kilometer state-owned railway in South China will be sold off soon, which may possibly become the first railway in China to be completely owned by non-public investors.

The state-owned Luoding Railway Co., an unprofitable coal carrier servicing two undeveloped cities in South China's Guangdong Province, has been announced for auction at the website of Guangzhou Enterprises Mergers & Acquisitions Services last week.

An official with the Guangzhou Enterprises Mergers & Acquisitions Services told Xinhua Sunday that it's the first time for the agency to deal with an auction on a railway company's total assets.

"The local government has agreed to auction the Chunluo railway connecting Yangchun and Luoding cities, so as to raise money for constructing another railway," said Fu Dunan, general manager of the government-invested Luoding Yongsheng Assets Management Company, owner of the Luoding Railway Co., in an interview with Xinhua.

According to Fu, the Luoding Railway Co., has been cornered with a total debt of 793.66 million yuan (99.2 million U.S. dollars) by the end of last year.

"The main reason for the huge debts is the deficient freight transport on the Chunluo railway which failed to link with the national railway grid, " Fu said.

A new railway has been planned in the area to extend the Chunluo railway to Cenxi in the neighboring Guangxi Zhuang Autonomous Region, which will be a key railway linking Guangdong and Guangxi in the coming years, and will surely help boost economy of Luoding city.

Fu said the 75.71-kilometer Luocen Railway, with 33-kilometer within Luoding city, will need a total investment of 1.47 billion yuan (183.6 million dollars), which will be an impossible mission for the Luoding government whose financial income was less than 200 million yuan (25 million dollars) in 2005.

According to the auction announcement, the buyers of the Luoding Railway Co., must have a registered asset no less than 300 million yuan (37.5 million dollars) in 2005, with the total asset no less than 7 billion yuan, debt to asset ratio lower than 50 percent and annual turnover no less than 2 billion yuan.

The buyers will not only take over all debts of Guoding Railway Co., but also undertake the construction of Luocen railway, said the announcement.

Chen Huiyong, vice general manager of Luoding Railway Co., said the company has applied to the Ministry of Railways whether the railway can be sold to foreign investors, but the ministry has no answer yet. "There is still possibility," said Chen.

China is opening up some of its monopolized industries to private investors in the recent years, such as power, railway, aviation, telecommunications, and petroleum.

Beginning with the end of 1990s, China's private investors were allowed to enter the railway freight sector, then expand business to passenger transportation on some railways.

But till April last year, the country has its first railway built with a portion of private investment. The Quchang Railway in East China's Zhejiang Province was jointly invested by Shanghai Railway bureau, Changshan county government and a cement company in Changshan, with the company sharing about one-third investment.

A document released by the Ministry of Railways last year said the ministry will encourage all kinds of non-public investment into the construction and innovation of the country's national rails, branch rails and local rails.

Source: Xinhua

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