China Railway Group Limited (CRG), one of the largest construction companies globally, should see steadily increasing revenue through 2019 as the state-owned China Railway Corporation (CRC) makes its billion-dollar investment on railway infrastructure development in the coming year. CRC’s stable, financially backed plan supports CRG’s low investment-grade rating.
As operator of China’s railway systems, CRC announced plans on Jan. 2 to invest RMB823.8 billion for railway infrastructure development in 2018. Moody’s Investor Services reported that the country’s investment is slightly less than in the past two years, but noticeably higher than investments between 2011 and 2013.
The latest investment is “credit positive” for CRG, based in Beijing, which has about a 45% to 50% share in the country’s railway construction industry, according to Moody’s. About 35% of CRG’s total revenue of RMB666.4 billion was thanks to railway construction revenue, ending June 2017.
“CRG will be one of the main beneficiaries of the government’s plan to continue making large investments into the country’s railway network, given its strong position in the domestic railway construction industry,” said Chenyi Lu, a vice president and senior credit officer for Moody’s.
Although CRG’s revenue will continue growing in the next two years, Moody’s predicts a slight decline from the 7.5% increase in 2017 to 5% in 2018 and 4% in 2019. At the end of June 2017, CRG experienced a significant order backlog of RMB2.21 trillion in addition to ongoing expansion overseas.
The company’s plans to increase its investment in real estate development and in builder-operator-transfer (BOT) and public-private partnership (P3) projects will cause its debt levels to increase between today and 2019. In order to support expanded operations, Moody’s reported, capital spending will also increase, effectively raising the debt level.
–Andrew Michaels, editorial associate