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Railway ministry aims to raise $4.2b in bond sale

By Chen Yang (Global Times)

08:43, July 31, 2012

The Ministry of Railways (MOR) aims to raise 27 billion yuan ($4.2 billion) through a bond issue Wednesday to finance the construction of rail projects across the country.

The offering will be the third this year under the ministry's 150 billion yuan bond issuance quota for 2012, and the money raised will be used in the construction of 51 rail projects, the ministry said Monday.

The MOR conducted a 20 billion yuan bond offering on June 12 and an 18 billion yuan bond sale on July 4.

China Chengxin International Rating Co gave its highest rating of AAA to both the MOR and its latest bond issuance.

"China has raised rail freight prices since May 20, which will help the MOR increase its profitability," the rating agency said Monday.

The ministry reported a loss of 7 billion yuan in the first quarter of 2012 due to a slowdown in passenger and cargo traffic.

"The ministry has urgent demand for financing due to pressure to pay off its short-term debts and its ambitious investment plan," Shen Zhengyuan, a transportation industry analyst with the CIC Industry Research Center, told the Global Times.

The ministry planned to invest 516 billion yuan in railway projects in 2012, but it only accomplished about one-third of its investment plan in the first six months.

Railway investment has cooled down since a deadly train accident in Wenzhou on July 23, 2011. But there are signs that construction of the country's high-speed rail network will soon speed up.

China aims to complete the construction of a high-speed railway network, which will stretch more than 40,000 kilometers by 2015, according to a five-year plan released by the State Council last week.

Shen warned that an aggressive expansion of high-speed railways will increase the financial burden on the MOR, whose long-term debt had risen to 1.92 trillion yuan by the end of March, up from 1.83 trillion at the end of 2011.

Currently the resources for the ministry's investment plan include the railway construction fund, bank loans and bond issuance, according to Zhao Jian, a professor in transportation at Beijing Jiaotong University.

"Banks are reluctant to lend, as they doubt the profitability of the new railway projects," Zhao said.

"The MOR should also encourage private capital to enter the rail construction sector, as that could help the ministry increase its efficiency," Shen noted.

The State Council announced Monday that the country plans to roll out a number of key projects in sectors including railways and public utilities to attract private investment.

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