CRG Struggled Even Before Wenzhou Disaster - ResearchInChina

Date:2011-08-10liming  Text Size:

August 1 – China Railway Group (CRG) (601390) suffered a hit to its fundraising activities and abilities to collect payments in the wake of the Wenzhou train crash on July 23 that killed at least 39 people and injured nearly 200, reports the Economic Observer. The firm’s subsidiary was in charge of track-laying and electricity systems for the route where the accident took place.

According to the report, the firm had experienced difficulties in fund raising, in attaining investments and in obtaining project payment for a majority of its projects since the first quarter of this year. As of May 31, CRG recorded 28 billion yuan in project payment arrears.

CRG made advance payment worth 24 billion yuan for those projects, 16 billion of which went to railway projects. By end of first quarter, the firm had debt ratio of 81.54 percent.

According to company chairman Li Changjing, domestic construction firms including CRG have across the board faced operational difficulties, particularly tightening capital, a rapid increase in costs and severe constraints on development.

CRG president Bai Zhongren admitted that it would be difficult to achieve this year’s goals in light of the Wenzhou disaster.

According to an insider at the CRG subsidiary, newly signed contracts totaled 177.5 billion yuan as of May 31, far below the goal it set at the beginning of 2011. Also, cash flow was negative with a debt ratio that was 0.54 percentage points higher than was budgeted. CRG also failed to make progress in overseas markets, as its high-speed railway plan in Poland made a huge loss.

The firm has since terminated the Poland project and faces corresponding claims of 1.75 billion yuan worth of compensation.

In 2010, gross profit margins for the company’s international business, which only accounted for five percent of total revenues, fell to 3.6 percent.

As of end May 31, a total of 31.5 billion yuan worth of contracts in the railway market were asked for bid, accounting for only seven percent of the total recorded the same period last year, the source added.

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