OREANDA-NEWS. Fitch Ratings expects China's construction companies will gain from the government's new plans to broaden the railway sector's investment channels, financing options and pricing mechanisms.

On 31 July, China's National Development and Reform Commission and four other Chinese government bodies jointly announced the following initiatives:

- Encourage social capital to invest in and operate inter-city, urban and overseas railway projects
- Provide discount interest loans and investment grants for central and west china railway projects that are funded by social capital
- Support various financing channels especially public-private partnership (PPP)
- Encourage financial institutions to use mining rights and concessions as guarantees or collaterals.

Fitch believes these measures will boost the domestic construction industry as financing has been a major bottleneck for the development of China's infrastructure construction. To resolve it, the government has been trying to increase project returns to attract social capital to invest in infrastructure.

Last week's announcement was preceded by several steps to liberalise the railway sector and attract social capital investments. The government began with railway pricing reform in 2013, aiming for a market-oriented pricing mechanism. In the toll road sector, on 21 July 2015, the Ministry of Transport released the "Revised Draft of Toll Road Administration Regulations", which allows for longer concession periods for toll roads to improve prospects for investments in state-owned toll roads.

In addition, construction companies have also improved liquidity via spin-offs and hybrid financing by issuing perpetual bonds and preference shares. For instance, China Railway Construction Corporation Limited (not rated) plans to spin off Kunming China Railway, and China Communications Construction Company Limited (A-/Stable) will spin off its dredging business.

Contact:

Winnie Guo
Associate Director
+852 2263 9969
Fitch (Hong Kong) Limited
28th Floor, Tower Two, Lippo Centre
89 Queensway, Hong Kong

Kalai Pillay
Senior Director
+65 6796 7221

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.

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