MOR to issue 20 billion yuan bonds

The Ministry of Railways (MOR) announced to raise 20 billion yuan ($3.14 billion) through a bond issuance Tuesday to finance the construction of the country's railway projects.

The offering will be the fourth batch this year under the ministry's 150 billion yuan bond issuance quota for 2012, the MOR said Monday.

China Chengxin International Rating Co gave its highest rating of AAA to the MOR and its latest batch of bond issuance.

The ministry aimed to speed up railway project construction this year, but had problems in completing projects in the first half of this year, due to capital shortages.

The total fixed asset investment amount is planned to reach 516 billion yuan, the MOR said in July, when it announced its second batch of bond issuance of 18 billion yuan.

However, the ministry only realized an investment of 177.75 billion yuan, around one-third of its planned amount in the first half of this year, according to the MOR.

"Expanding the scale of railway project construction is necessary as railway transportation capacity of the country is still not adequate," Luo Renjian, chief researcher at the Institute of Comprehensive Transportation under the National Development and Reform Commission (NDRC), told the Global Times Monday.

But the country's railway sector has suffered big losses, especially after aggressive expansion of high-speed railways. The MOR reported a loss of 7 billion yuan in the first quarter of 2012, due to a slowdown in passenger and cargo traffic.

The average debt-to-asset ratio for the country's rail sector exceeded 60 percent in the first quarter of this year.

The cumulative bond balance should be no more than 40 percent of corporate net assets, according to the regulations governing the country's bond market.

But after the latest round of bond issuance, the MOR's cumulative bond balance will break the 40 percent warning line.

"Extensive reform is needed for the railway sector, and the sector should not always rely heavily on issuing government-backed bonds," Li Lei, a transportation industry analyst with the China Securities Co in Beijing, told the Global Times Monday.

The NDRC announced last October that bonds sold by the MOR are backed by the government in a bid to boost investors' confidence.

"The railway sector is strictly controlled by government units like the NDRC and MOR, and a lack of market-oriented mechanism is the major obstacle for the sector's reform and development," Li said.

The government announced in May plans to open the railway sector to private investors as part of the reform of the sector.