Bloomberg News

China Railway Falls After Projects Halted; Airlines Surge

August 11, 2011

(Updates with closing share prices from second paragraph.)

Aug. 11 (Bloomberg) -- China Railway Group Ltd. plunged to a record low in Hong Kong trading, and CSR Corp. tumbled after the government announced a halt to new train projects following last month’s fatal high-speed crash. Airlines surged.

China Railway fell 6.06 percent to HK$2.17, the lowest intraday price since its debut in 2007. The builder also yesterday scrapped plans for a 6.25 billion yuan ($978 million) share sale. Trainmaker CSR dropped 7.6 percent to close at HK$4.39. China Southern Airlines Co. jumped 6.9 percent.

The Chinese government yesterday said it will suspend approvals for new rail projects and conduct safety checks on existing lines following a July 23 high-speed train crash that killed 40 people. CSR and China Railway have both plunged more than 30 percent since the accident on concerns it may disrupt the nation’s plans to spend 2.8 trillion yuan on railways through 2015.

“The suspension of approvals for new projects was an unexpected move,” said Jack Xu, a Shanghai-based analyst with Sinopac Securities Asia Ltd. “Government policies are very important for construction companies and equipment providers, so investors are concerned about these companies’ earnings prospects.”

China Railway let a mandate to sell new shares to its government-controlled parent and other investors lapse due to an “adjustment to the macroeconomic policies of the state,” it said in a statement yesterday. CSR has also delayed a shareholder vote on a proposed 11 billion yuan stock sale since the crash.

China Railway intended to sell as many as 1.52 billion new Shanghai-listed shares for at least 4.11 yuan apiece. Its stock fell 0.6 percent to close at 3.19 yuan in Shanghai. CSR, China’s biggest trainmaker, dropped 1.7 percent to 5.28 yuan in the city.

‘All-Out’ Safety

The railway ministry has dispatched 47 teams of 180 people for “all-out” safety inspections, the official Xinhua News Agency said yesterday, citing Minister Sheng Guangzu. The speed of trains running 350 kilometers an hour (217 miles an hour) will be reduced to 300 kilometers an hour, and those operating at 250 kilometers an hour will be cut to 200 kilometers an hour, Xinhua said. Ticket prices will be lowered to reflect slower speeds, according to Xinhua.

Shanghai also suspended sales of high-speed rail tickets from Aug. 15 pending schedule changes, according to state-run China Central Television.

China Southern, the nation’s biggest carrier, jumped 6.9 percent to HK$4.95 at the 4 p.m. close in Hong Kong, after earlier climbing as high as HK$5.02. Second-ranked China Eastern Airlines Corp. fell 6.5 percent to HK$3.61.

The July collision occurred near Wenzhou when a train lost power after being struck by lightning and was rear-ended by a second train, Xinhua said, citing the provincial emergency office. A preliminary investigation attributed the crash to a signaling fault.

--With assistance from Bloomberg News, Bloomberg News and Bloomberg News in Shanghai. Editors: Neil Denslow, Dave McCombs

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

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


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