China Railway Construction’s win on railway project in Zambia is credit positive

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Moody’s Investors Service says that China Railway Construction Corp Ltd’s (CRCC, A3 stable) winning of a contract for a railway construction project in Zambia (B3 negative) is credit positive and supports its A3 issuer rating.

The rating outlook remains stable.

Earlier On 3 November 2016, CRCC announced that it had won the contract for the Chiapata via Petauke to Serenje Railway Line — also known as the Zambia East-line Railway — with the Ministry of Transport and Communications in Zambia.

The contract size is about RMB15.1 billion, accounting for about 0.8% of CRCC’s total order backlog at end-June 2016 or 2.5% of its revenue for the 12 months ended 30 June 2016. The project will have a construction period of four years.

“This contract win demonstrates the company’s strong capabilities — with cutting-edge technologies — in railway, bridge and tunnel construction for large and complex projects overseas,” says Chenyi Lu, a Moody’s Vice President and Senior Analyst.

Moody’s believes this project will help it strengthen its market position in Zambia.

Moody’s projects that revenue from overseas operations will grow to 7% to 8% of total revenue over the next three years from about 5.5% in 1H 2016, reflecting efforts to penetrate overseas markets.

Moody’s expects that CRCC’s annual revenue growth will remain steady in the low-single digit percentages over the next 1-2 years, given its large order backlog of RMB1.83 trillion at end-June 2016; continued overseas expansion;, and the expectation that solid spending on railway construction and infrastructure development will continue in 2016 and 2017 in China (Aa3 negative).

CRCC will keep its investments in real estate and build-operate-transfer projects to manageable levels, limiting increases in debt over the next two years.

Moody’s therefore expects its adjusted debt/EBITDA to remain stable at around 4.5x-5.0x over the next 12-18 months. This level of leverage is in line with its current standalone credit quality.


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