Web Exclusive

Reforms urged in railway financing system

By Qiang Xiaoji (chinadaily.com.cn)
Updated: 2010-07-27 14:12

China's railway sector paid more than 40 billion yuan ($5.9 billion) in interest last year, and the amount may exceed 100 billion yuan as debt financing accounts for a bigger share of the way the railway sector is financed, according to a report released by China Minsheng Banking Corp (CMBC) on Monday.

The huge amount of interest generated every year will levy a heavy burden on the railway sector and threaten its profits, and reforms in the financing system has become a priority, the China Business News reported Tuesday.

Related readings:  Express passenger claims off the rails  China to add 20,000 km of rail in west regions   China, Argentina sign $10b railway deals  Shanghai-Nanjing intercity railway starts operation

According to the report, in 2009, more than 70 percent of the funds used for railway construction were from debt financing, a much higher proportion than the 48.83 percent in 2005.

The swelling in debt financing has driven the Ministry of Railways' (MOR) debt ratio to increase every year.

In 2009, total debts of the ministry were estimated to exceed 1 trillion yuan, with a debt-to-asset ratio of more than 55 percent, but the ratio may exceed 70 percent by 2012, the report said.

Reforms in MOR's financing and investment system has become a priority for China's transportation industry, said Han Feng, president of the transportation finance department of the CMBC and an author of the report.

The reforms will be targeted at expanding railroad construction by joint-ventures and including diversified investors in the construction, such as insurance companies, trust companies and private capitals, Han said.

The ministry is also planning to regulate the management of listed railway companies such as Daqin Railway Co, Guangshen Railway Co, and China Railway Tielong Container Logistics Co, Han told the newspaper.

An unnamed analyst also said it is imperative to float the railway assets or adopt other equity financing measures, the Securities Daily reported.

If the railway sector keeps the current structure in assets and pace of development, by the year 2020, total debts will approach 3 trillion yuan with a debt-to-asset ratio of over 70 percent. As the old methods of financing run short, raising money from listings will be a natural option, the source added.

The CMBC report also said MOR's investment in railway equipment normally accounts for 20 percent of the total.

In 2009, China spent 98 billion yuan to purchase railway equipment, and the amount is predicted to exceed 130 billion yuan this year.