China Rail Falls to Record Low On Project Delays

China Railway Group Ltd. (601390), builder of two-thirds of the nation’s tracks, tumbled to a record low in Hong Kong trading after 21st Century Business Herald said that 80 percent of China’s rail projects have been put on hold.

The construction company dropped as low as HK$1.48, the lowest intraday price since it began trading in December 2007. It was down 3.8 percent at HK$1.52 at 10:42 a.m. China Railway Construction Corp. fell as much as 5.4 percent and trainmaker CSR Corp. dropped as much as 9.6 percent.

The rail projects have been suspended pending clarification of government policies and because banks have stopped issuing loans on concerns about repayments, 21st Century Business said on Oct. 1, citing an unidentified person close to the railway ministry. The government has already slashed spending on railway construction following a fatal high-speed train crash in July, causing China rail stocks to tumble.

“Obviously, the news highlighted by 21st Century is not good,” said Karen Li, a Hong Kong-based analyst at JPMorgan Chase & Co. The slump also reflects “negative sentiment toward the entire fixed-asset investment segment.”

The report didn’t elaborate on which policies were in need of clarification. The railway ministry, which had 2.09 trillion yuan ($328 billion) of liabilities as of the end of June, last week delayed a 20-billion yuan bond until the middle of October. It last sold bonds on Sept. 7, when it issued 5 billion yuan of five-year notes priced to yield 5.93 percent, according to data compiled by Bloomberg.

The yield gap between the ministry’s one-year notes and government debt has risen almost fourfold this year to 219.42 basis points, according to Chinabond data.

Calls to the ministry, Beijing-based China Rail Group, China Rail Construction, CSR Corp. and trainmaker China CNR Corp. were all unanswered today. China began a weeklong national holiday today.

Zoomlion, Lonking

China Communications Construction Co., which builds railways and ports, dropped as much as 8.4 percent. Construction-equipment maker Changsha Zoomlion Heavy Industry Science & Technology Development Co. declined as much as 10 percent and Lonking Holdings Ltd. (3339), which also makes building gear, fell as much as 9 percent.

China Rail Group, China Rail Construction and CSR Corp. have all fallen more than 44 percent since the July 23 bullet- train crash near Wenzhou that killed 40 people. China slashed spending on railway construction 50 percent in August as it investigated the crash.

--Billy Chan and Feiwen Rong with assistance from Marco Lui in Hong Kong. Editors: Neil Denslow, Garry Smith

To contact the reporters on this story: Billy Chan in Hong Kong at bchan101@bloomberg.net; Feiwen Rong in Beijing at frong2@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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