Move to guarantee that projects go ahead; creditors express concerns

BEIJING - To ensure construction continues on train line projects, the Ministry of Railways has promised to pay off some of its creditors before Nov 20.

The move, announced in a brief statement on Thursday night, is being seen as a positive signal by creditors, although some raised doubt over the proposed speed of the payments.

"With the support of relevant departments, (the ministry) has enhanced its fundraising efforts and will soon channel the money to project contractors," the statement read. It did not provide further details.

A Xinhua News Agency report this week cited sources as saying that the ministry is expected to soon receive at least 200 billion yuan ($31.5 billion) in fresh money from the central government.

CSR, the country's largest train manufacturer, said on Tuesday that it had received 6 billion yuan from the ministry, and added that it believes most of the total account of receivables will be paid before year-end.

On the same day, China CNR, another train manufacturer, said it had received 4.5 billion yuan.

Other companies, however, said they are still waiting for the ministry to allocate money.

Media reports said in mid-October that rail projects spanning 10,000 km have been suspended due to a shortage of money. Many migrant workers have not been paid for six months, while rail construction companies also owe big sums to cement and steel suppliers.

Analysts said the ministry has some 250 billion yuan of receivables to pay off.

According to official statistics, 36 listed companies closely involved in the high-speed rail sector, including CSR, China CNR and two major construction groups, have trade receivables of 249.1 billion yuan.

Wang Mengshu, deputy chief engineer at China Railway Tunnel Group, said: "The 200 billion yuan in financial support is only enough to pay off the receivables, but it is a good start."

However, he doubted whether the promised payments will be made by Nov 20.

"Railway enterprises have to submit reports to the ministry first, stating the account of receivables. The ministry will then assess these reports before allocating funds. The process will take at least one or two months," Wang said.

An insider at Angang Steel, which supplies steel for rail projects in Northeast China, agreed.

"It should take quite a while, as the money will be allocated from the ministry to railway construction companies and then to suppliers like us," said the insider, who spoke on condition of anonymity.

He said he expects demand and production to normalize early next year.

The ministry is under pressure as more than 10,000 km of railways is being rolled out across the country.

The latest audit report showed the ministry had 3.74 trillion yuan in total assets and 2.23 trillion yuan in debts by the end of September this year. The debt-to-asset ratio has risen to 59.6 percent, up from 57 percent by the end of last year.

Wang said the current way of investing in rails should be changed, as the ministry borrows from banks and sells bonds to gather money for construction.

"As a result, the ministry has to pay interest on bank loans and bonds sold," he said, adding the ministry pays 150 billion yuan in interest each year.

Rail construction companies also have to borrow to buy materials and pay workers before getting paid by the ministry. Forty railway companies pay interest of 20 billion yuan a year, he said.