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Restructuring fails to lift shares

By Huang Tiantian (China Daily)

08:25, March 15, 2013

The restructuring of the Ministry of Railways has so far failed to lift the prices of railway-concept shares.

No applause was given by the market to the major move by the government, reflecting investors preference to solid facts and figures rather than words.

Or one may say the market is still waiting for details.

Shares of the railway construction companies edged upward an average 0.62 percent on Monday, the day after the government announcement, but declined 3.04 percent on Tuesday and 2.74 percent on Wednesday.

On Thursday, they again dipped 0.39 percent.

According to the government plan, the Ministry of Railways, once called the last stronghold of the planned economy, will be dissolved.

Its administrative arm will be taken by a new State railway administration under the Ministry of Transport.

Construction of railways and operation of all rail services - along with all the assets and debts of the former railway ministry - are to be transferred to the newly established China Railway Corp.

Thus, in theory at least, an investment opportunity is created when one of the largest companies in the world will from now on begin to raise its funds from the marketplace rather than from direct government funding.

"It is definitely good news," said Liu Jipeng, director of the financial capital research center of China University of Political Science and Law. "The railway industry's restructuring will benefit the capital market."

Liu said it is still too early to see the effect because "the reform has a long way to go".

The biggest uncertainty is how the new CRC will deal with the 2.66 trillion yuan ($490 billion) of debts raised by the former railway ministry.

It would be unimaginable for a company to be listed with such huge amount of debts, no matter how large its total assets are.

Sheng Guangzu, the last railway minister, said the debts are only equivalent to 61 percent of the industry's total assets, a much healthier debt-asset ratio than most State-owned enterprises.

But Ye Tan, an independent business commentator, said a possible listing of CRC would crush the Chinese capital market.

The CRC will have to further divide its system into more corporate entities, experts said.

Liu Jipeng suggested that the high-speed rail services should be grouped into one company to seek early listing. "They are our national treasures," he said.

Zhao Jian, a professor with Beijing Jiaotong University, proposed that CRC be divided into three geographical companies - to manage railways and services in the country's northern, central, and southern areas.

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