BEIJING: Betting on the nation's ongoing railway construction boom, Bank of China (BOC) said it planned to invest 7.5 billion yuan ($1.10 billion) in the operator of a 1,260-kilometer railway link between northern China's major coal mines and port cities.
The nation's third-largest lender by market value plans to purchase a 14.5 percent stake in the yet to be established railway company, with registered capital of 51.9 billion yuan, it said in a filing to the Shanghai stock exchange over the weekend.
The investment will be made using foreign currency through its Hong Kong-based investment arm - Bank of China Group Investment Ltd - and is still pending regulatory approval from regulators, including the Ministry of Commence, it said in the filing.
The deal, follows a decision by the lender a month earlier to invest up to 6 billion yuan for a 4.5 percent share in a State-run construction firm charged with building an express railway linking Beijing and Shanghai, shedding light on the bank's diversified business development strategy.
"The investment is expected to bring reasonable profits to the bank and will help the lender obtain more business opportunities in the country's massive railway construction and investment (sector)," the bank said.
The 1,260-km railway, slated to pass through northern China's Shanxi, Henan and Shandong provinces, is part of the country's effort to boost its railway network nationwide and catch up with increasing transportation demand spurred by rapid economic growth in recent years.
With the launch of the 4 trillion yuan infrastructure-focused stimulus package amid the financial crisis, the country is aggressively expanding its railway network. There are more than 2.1 trillion yuan in construction projects currently under way, and by 2012, the country's high-speed railway is expected to account for half of the world's total length.
The construction of the Shanxi-Shandong railway, linking China's major coalmines with port cities, such as Rizhao of Shandong province, is expected to be completed in the next four and a half years with a total investment of 99.8 billion yuan, BOC said in the filing.
The Beijing-based bank, which hopes to raise 40 billion yuan from some of its existing shareholders to cement its financial strength, said the investment would have no major impact on its financial condition or business operations.
"The investment will deliver a decent return to the lender as the country's railway sector will experience a high growth period over the next few years," said She Minhua, banking analyst with Haitong Securities, adding he doubted whether the railway investment would hinder the capital-strained bank's core business development.
