Dagong defends its rating on the Ministry of Railways

(Xinhua)

09:48, August 14, 2011

BEIJING, Aug. 13 (Xinhua) -- Chinese rating agency Dagong Global Credit Rating Co. on Saturday defended its AAA rating given to the Ministry of Railways, which has been under public fire over a train collision last month.

The ministry received the long-term credit rating after launching on Monday its first bond sales since the crash on July 23 that killed 40 people near the Wenzhou city of eastern Zhejiang province.

It sold 20 billion yuan worth of three-month bills on offer in the interbank market, with a yield of 5.55 percent, a relatively high rate for short-term government paper.

The rating was assigned because of the ministry's status as a government agency backed by the central government revenue, its sufficient capital flows and strong financing ability, Dagong said in an email to Xinhua.

The agency made the elaboration in response to market doubts as the ministry is already heavily indebted and the accident has stirred up skepticism about the its credibility and the safety of fast-expanding railways.

Adding to doubts is that the AAA rating of the ministry is even a notch above China's local currency debt rating of AA+, which was also rated by Dagong.

Government data showed the ministry's debts exceeded 2 trillion yuan (313 billion U.S. dollars) as of the end of June, raising its debt ratio to 58.53 percent, slightly up from the end of the first quarter of this year.

Dagong said in the statement that the debt-to-asset ratio is medium level, lower than the alert line for the ministry which is 75 percent.

The ministry has large-scale assets of good quality and relatively large room for fund-raising, Dagong said.

The ministry has "extremely strong" repayment ability as it is backed by the state's credit, Dagong said, referring it as one of the three authorities that are allowed to issue bonds, along with the Ministry of Finance and the People's Bank of China.

In July, the ministry issued 20 billion yuan of one-year commercial papers with a coupon rate of 5.18 percent, but only 18.73 billion yuan of the total was bought.

Analysts said it has become more difficult for the ministry to borrow money because of tightened market liquidity and concerns over the ministry's debt burden.

China's top four banks said at the end of last month that they will continue to offer loans to the ministry based on market conditions and risk appraisal. Credit from the four largest state-owned banks including the Industrial and Commercial Bank of China and the Construction Bank of China has been the major source funding the construction of China's fast-growing railways in recent years.

The operational cash flows have continued to grow, making the ministry invulnerable to default risks due to management problems, the statement added.

Safety concerns aroused by the accident prompted the State Council on Wednesday to order slower running speeds of bullet trains for safety and cuts in ticket prices on affected lines.

Dagong said the losses from the accident are not big enough to hurt the ministry's ability to repay its debt.

"Cheaper tickets will attract more passengers to take trains, which will offset the losses from lower ticket prices," it said, adding slower speeds will reduce cost for train maintenance.

In addition, Dagong said China will continue to ramp up investment in construction of railways, which will improve the ministry's repayment ability and credibility.

The State Council on Wedneday reiterated its stance on railways, saying "China will unswervingly continue its development of high-speed railways."

The ministry's spokesperson Wang Yongping said in May that the ministry's total investment this year will reach 745.5 billion yuan, with 600 billion yuan going to infrastructure construction.

China plans to invest 2.8 trillion yuan in the railway sector in the 2011-2015 period during which the length of its high-speed railways are expected to expand to 45,000 km. 

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