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BOC mulls stake buy in rail firm

By Mao Lijun and Zheng Lifei (China Daily)
Updated: 2009-08-07 07:45

Workers at the Shanghai terminal construction site of the Beijing-Shanghai High-Speed Rail. [CFP]

Bank of China is planning to invest nearly 10 billion yuan for about 8 percent stake in Beijing-Shanghai High-Speed Railway Corp, the owner and operator of the under-construction 1,318-km express rail link between the two most affluent cities in China, people familiar with the matter said.

Bank of China Group Investment Ltd (BOC Investment), a wholly owned investment subsidiary, will purchase the stake from China Railway Investment Corp, an investment arm of the Ministry of Railways and the majority shareholder of the express rail corporation, one person with knowledge of the deal said.

"The (railway corporation) board has already given the go-ahead to the plan but it needs to be approved at the shareholders' meeting," said the people, who asked not to be named.

"The two sides still need to hammer out some details of the investment plan, such as the exact share price," another person familiar with the matter said.

"But they have basically agreed that BOC Investment would take around 8 percent stake in the company for about 10 billion yuan," the person said.

The final share price and investment size, analysts said, would be set by referring to the country's national pension fund, which had purchased 8.69 percent in the railway corporation for 10 billion yuan when it was founded.

The three parties - BOC Investment, China Railway Investment Corp and the railway company - could not be reached for comment on the deal.

The move is part of efforts by the Ministry of Railways to raise funds to aid the country's frantic railway construction boom, analysts said.

"The railway ministry has to find capital to fund the massive railway building boom currently underway in the country; this may be a major reason behind its decision to sell the stakes (in the railway company) to Bank of China," said Li Chao, analyst, China Jianyin Investment Securities Co.

The express rail corporation was established in 2007 to supervise the construction and operation of the express railway between Beijing and Shanghai, which is scheduled to become operational next year.

China Railway Investment Corp, which invested 64.7 billion yuan in the railway company, is the single biggest shareholder of the company with 56 percent stake.

The railway corporation, with a registered capital of 115 billion yuan, also has shareholders drawn from a wide variety of backgrounds, including insurers and pension funds.

Ping An Insurance, the country's second biggest insurer, has invested nearly 16 billion yuan for a nearly 14 percent stake in the railway company.

Local government investment vehicles own the rest of the shares in the company.

The Ministry of Railways has been trying to raise capital by selling bonds and floating the assets of some its best-performing railways such as the Daqin Railway Co.

The ministry is planning to package railway assets that come under its three major regional railway operators into a holding company and then float its shares to the public, sources had told China Daily earlier.

Related readings:  Bank of China's new yuan loans hit 901.9b yuan in H1  BOC shares' sales restriction lifted, feared to shock market  No listing plans for Beijing-Shanghai rail express: official  Ticket price of Beijing-Shanghai express likely 500 yuan

Under the plan, which is still in the early stages, the assets of the 220-billion-yuan Beijing-Shanghai high-speed rail would be injected into the holding company after the proposed vehicle goes public, the sources said earlier.

The prospects for long-term investment returns in the Beijing-Shanghai express railway are bright, although it may take time to generate stable passenger volume initially, Li, the analyst, said.

"Which is why so many institutional investors are so keen on taking some stake in the rail line," he explained.

BOC Investment was incorporated in Hong Kong in 1984, and acts as Bank of China's investment vehicle.