China Railway Construction to Sell Saudi Contract to Parent

China Railway Construction Corp. (1186), builder of more than half of the nation’s railroads, said it will sell an unprofitable contract to build a light railway in Mecca to its parent for 2.08 billion yuan ($316 million).

The parent, also called China Railway Construction Corp., will assume any profit or loss from the Saudi Arabia project, protecting the interests of minority shareholders, the listed company said in a Hong Kong stock exchange filing yesterday.

China Railway said it will still book an expected loss of 4.15 billion yuan from the contract for 2010 and previous years, accounting for the payment from the parent and any compensation from the client, Saudi Arabia’s Ministry of Municipality and Rural Affairs, as “capital surplus.”

The contract, originally valued at 6.7 billion riyals ($1.8 billion), called for 18 kilometers (11 miles) of track linking religious sites around Mecca and Medina. The client subsequently raised planned capacity, changed other instructions and delayed land purchases, China Railway said Oct. 26.

The stock, halted since Jan. 20, will resume trading in Hong Kong Jan. 24, the company said. It’s gained 3.9 percent this year, compared with the 3.7 percent increase in the benchmark Hang Seng Index. China Railway gained 0.7 percent to HK$9.72 on Jan. 19.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editor responsible for this story: Bruce Grant at bruceg@bloomberg.net

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