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Railways holding firm, float mulled

By Mao Lijun and Zheng Lifei (China Daily)
Updated: 2009-06-25 07:51

China's Ministry of Railways is planning to package one of its most valuable railway line assets into a holding company and then float its shares to the public in a bid to raise capital to fund the country's frantic railway building boom.

The ministry also plans to inject the assets of the 220 billion yuan ($32.20 billion) Beijing-Shanghai high-speed rail, to be operational next year, into the company after the proposed vehicle goes public.

The plan, which is still in the very early stages, calls for restructuring of the 300 billion yuan worth of assets of the Beijing-Shanghai railway with the aim of listing it in future, two people with knowledge of the matter said.

The ministry has two proposals on the matter, one of them said.

Restructuring of the Beijing-Shanghai rail will be a major breakthrough in the reform of China's railway system, experts say. [China Daily]

One proposal relates to the three railway bureaus under the ministry, namely Beijing Railways Bureau, Shanghai Railways Bureau and Jinan Railways Bureau -- all of which have assets related to the Beijing-Shanghai railway -- jointly setting up a holding and joint stocks company and putting their relevant assets into the special purpose vehicle.

The other plan is for the ministry to invite interested institutional investors to set up an investment vehicle with the three railway bureaus, modeled after the structure of the management company of the Beijing-Shanghai high-speed rail, in which the ministry would hold a majority stake. The country's pension fund, local governments and the nation's second biggest insurer Ping An would take the remaining stake, as per the proposal.

"The ministry has not yet decided which proposal is feasible," the person said.

Financial institutions, such as insurance companies and banks, would be potential and preferential investors, but the person did not say whether foreign institutions would be welcome to join in the program.

The 21st Century Business Herald reported on Monday that the railways ministry had once planned to list the Beijing-Shanghai high-speed railway separately.

"But the ministry may have killed the idea as it may take many more years to have it listed due to regulatory requirements," the people said.

According to the country's securities rules, companies seeking domestic listings are required to be profitable for at least three years prior to the listing.

The planned company will eventually take the 1,318-km Beijing-Shanghai high-speed railway, which is still under construction, under its wing by buying out its assets after the company itself goes public.

In order to improve asset quality in the proposed holding company, the source told China Daily that the ministry is considering spinning off some of the under-performing assets, such as the freight transportation business, from the Beijing-Shanghai railway asset portfolio that it plans to inject into the new company.

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