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China Railway gets $7.5b global order

By Li Fei (China Daily)
Updated: 2009-08-04 08:12

China Railway Group Ltd said it would consider undertaking a $7.5-billion railway project contract won by its parent company in Venezuela, which would be the biggest overseas contract the railway builder has ever undertaken in its history.

The mega contract is also the latest sign of the growing prowess of Chinese railway builders in the global construction business arena.

The country's biggest railway and highway builder said a subsidiary of its parent company China Railway Engineering Corp has been appointed by the Venezuela Railway Authority as the contractor to design and build the 468-km railway in the South American country for $7.5 billion.

The Venezuela contract is revenue accretive and a big boost for the railway builder. [CFP]

China Railway Group Ltd, listed in Shanghai and Hong Kong, said its parent company has decided that it will assign the project to China Railway Group Ltd and it would hold a board meeting soon to decide whether to undertake the massive order.

The value of the Venezuela project is equivalent to 22 percent of the total revenue China Railway Group Ltd chalked up in 2008 and would be the biggest overseas order the railway builder has ever won.

The value of the huge design and construction contract also exceeds the total overseas order the company booked in the past two years, according to China Jianyin Investment Securities.

"This contract is a major breakthrough for China Railway Group, whose mainstay railway building business is concentrated in the domestic market whereas overseas contracts used to be in small size," China Jianyin Investment Securities said in a note.

"The contract, which includes both design and construction, plays into China Railway's strength as an integrated contractor," the securities house said in the note, issuing a "strong recommendation" rating on the stock.

China Railway Group Ltd, which grabbed 24.5 billion yuan worth of overseas contracts last year, is expected to bag overseas orders worth 100 billion yuan this year, according to calculations by TX Investment Consulting Co.

China Railway's shares edged up 1.16 percent to close at 7 yuan in Shanghai trading yesterday.

The growing number of the mammoth railway construction order Chinese contractors win overseas in recent years is a sign that their global competitiveness is increasing.

Related readings:  China, Venezuela sign $7.5b railway deal  WB lends $500m to China to expand rail, improve environment  China Railway bags 5 orders   China Railway Construction bags 6.23b yuan order

China Railway Group's Venezuela order comes less than two months after its smaller rival China Railway Construction Corp won a railway contract worth 20.6 billion yuan in Algeria in June.

The two groups' steady overseas order intake and huge domestic market potential, analysts said, will help maintain rapid and stable revenue growth in the coming years.

The country's 4-trillion-yuan economic stimulus package unveiled last November has spawned numerous opportunities for infrastructure and railway builders.

The government has said it would spend 5 trillion yuan alone until 2020 to build another 41,000-km-long railway to its existing rail network.