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Foreign bankers courting China's Railway Ministry

Goldman Sachs Group Inc Chairman Henry Paulson squeezed in a 30-minute meeting at China's Ministry of Railways during a one-day visit to Beijing on June 4.

He's among dozens of bankers chasing potential fees advising China on how to restructure the ministry, which runs a 70,000km network, and raise funds for construction.

"China's railroads are developing very quickly and there truly is a need for large amounts of capital, which is probably why the bankers are so interested," said Li Chaozhong, an official in the ministry's international department, who met with Paulson.

"A share listing will have to wait for the restructuring, which still hasn't been set," Li said.

Japan provides a guide for what fees may be on offer. The government in the 1980s divided the national railway system into seven companies and has sold US$25 billion of stock in three of them, including an offering last year of East Japan Railway Co shares, which Goldman helped arrange.

"Railways are one of the sectors that we will be looking at" in China, said Nicole Yuen, UBS AG's director of equity corporate finance in Hong Kong.

"The restructuring is definitely the most important part of the process to turn something that may be unsuitable for listing to something listable," Yuen said.

Goldman spokeswoman Mei Zhang declined to comment on whether Paulson discussed a share sale plan with the ministry.

While funding proposals are being considered, the Chinese government must first decide how it plans to restructure the ministry, Li said.

On June 19, Hong Kong Exchange & Clearing Ltd.

Chief executive Paul Chow said he will invite the ministry to list publicly traded rail companies in the city.

China previously restructured its telecommunications, power and aviation ministries. Several companies sold shares overseas, including China Mobile (HK) Ltd, Huaneng Power International Inc and China Southern Airlines Co.

Guangshen Railway Co, which runs trains between the southern Chinese cities of Guangzhou and Shenzhen, is the only Chinese railway company that has shares traded in Hong Kong.

In 1999, the Chinese railway ministry's 14 departments were reorganized into cargo and container transportation companies, and a national railway holding company.

The ministry also has a tourism business and universities.

China needs to expand its railroad network because it moves more than 54 percent of the nation's domestic trade, deputy railway minister Sun Yongfu said last year.

The central government plans to invest 255 billion yuan (US$30.8 billion) to lay 13,500km of railroad between 2000 to 2005.
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