China Railway cancels $976m private placement

Updated: 2011-08-12 15:21

By Tang Zhihao (China Daily)

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SHANGHAI - China Railway Group Ltd (CRGL), the railway construction giant, announced on Thursday the cancelation of a plan to offer a private placement that would raise 6.24 billion yuan ($976 million) for the company.

The plan for a non-public offering, approved by shareholders in August 2010, intended to issue some 1.5 billion A shares to up to 10 investors at a price of not less than 4.05 yuan a share.

The proceeds would have been used to support the construction of a subway project in Shenzhen, Guangdong province and three bridges and a road construction project in Liuzhou in the Guangxi Zhuang autonomous region.

CRGL's share price has gradually dropped after two bullet trains collided in Wenzhou, Zhejiang province on July 23, leaving 40 people dead and nearly 200 injured.

Shares of CRGL listed in Shanghai Stock Exchange (SSE) closed at 3.19 yuan on Thursday, falling by 0.6 percent compared with its closing price on Wednesday. Before the accident, CRGL's share price was hovering at around 4 yuan.

"Uncertainties may exist within the government's approval process because of the change of macroeconomic policies. As a result, shareholders' approval ceased to be effective," said CRGL in a statement filed to the SSE.

The Wenzhou accident ignited public concerns about the safety of high-speed trains in China.

The State Council presided over by Premier Wen Jiabao on Wednesday has decided to lower the operating speed of bullet trains and re-evaluate the safety system of rail projects that have been approved but yet to be constructed.

Meanwhile, approvals for new rail projects have been postponed.

Analysts said the plan would not have a long-term negative effect on listed companies that have exposure to railway projects.

"Railway construction is not for investment purposes. It is used to support economic development in China," said Zhou Xueyi, an analyst with Huaxin Securities.

"As China is undergoing tremendous economic development, it is essential to develop railway projects that can transport large volumes of people and goods in the most efficient and effective way."

Experts said although changes to macro policy would not have a long-term negative effect on railway-related companies, a short-term effect is inevitable.

CSR Corp Ltd, a passenger carriage maker, announced on Aug 3 that it is postponing a non-public share offering plan.

Meanwhile, a subsidiary of China CNR Corp Ltd has frozen production of one high-speed train model after the discovery of a high fault rate.