(Bloomberg, Nov 29, 2006) Guangshen Railway Co., an operator of trains in Guangdong, China's richest province, applied to sell yuan-denominated shares for the first time to fund the purchase of a rail line.

The Shanghai sale will equal 38.8 percent of the company's enlarged share capital, the Hong Kong-listed rail operator said in a prospectus posted on the China Securities Regulatory Commission's web site. The sale may raise as much as $1.4 billion, according to Bloomberg calculations based on the company's Hong Kong stock price.

China's government is tapping capital markets as it seeks 100 billion yuan ($12.8 billion) to extend the nation's railway network 35 percent by 2020. Guangdong province, which neighbors Hong Kong, has attracted investment from overseas companies such as Toyota Motor Corp. and Royal Dutch Shell Plc with tax breaks.

``The acquisition of the rail line, financed by selling shares, will boost the company's growth,'' said Danny Lai, an analyst with Core Pacific-Yamachi International (H.K.) Ltd., who has a `hold' rating on Guangshen Railway's stock. ``We see it as a positive move.''

Guangdong, which neighbors Hong Kong, had a gross domestic product of 2.17 trillion yuan last year, the largest in China.

Rail Line

Guangshen will buy assets including a rail line between the cities of Guangzhou and Pingshi from Yang Cheng Railway Co., a unit of its parent, Guangdong Railway Corp., it said in the prospectus. The company plans to offer as many as 2.75 billion shares, it added.

The rail operator may also borrow as much as 3.36 billion yuan to help fund a new line between Shenzhen and Guangzhou, it said on July 18.

Shares of the rail operator climbed 0.5 percent to HK$4.01 at the 13:30 p.m. trading break in Hong Kong. The stock has gained 72 percent this year, compared with a 26 percent rise in the benchmark Hang Seng Index.

Guangshen operates trains between Shenzhen and Guangzhou, and to other Chinese cities including Beijing. The Shenzhen, Guangdong-based company also runs a service with Hong Kong's Kowloon-Canton Railway Corp. connecting Hong Kong and Guangzhou.

The rail operator may offer its Shanghai shares at a discount to its Hong Kong stock. Bank of China Ltd., the nation's second-largest lender, offered Shanghai-listed shares at a 17 percent discount in its 20 billion yuan sale in July.

Air China Ltd., the nation's largest international carrier, offered almost no discount when it sold 4.59 billion yuan of shares in Shanghai in August. The airline raised about 40 percent less than planned, as institutions bid for barely a third of the stock.

Daqin Railway

Daqin Railway Co., operator of China's biggest coal transport line, raised 15 billion yuan in a domestic share sale in July.

Shenzhen Zhongji Industrial Development (Group) Co. agreed to buy state-owned Luoding Railway for 42 million yuan in August. The line was the first in the country to be offered for sale to private investors. The company will also be responsible for building a new 33.5-kilometer railway in Guangdong province, the municipal government said on its Web site on Aug 23.

Guangshen first announced plans for a share sale in November 2004. It delayed the sale after China imposed a ban on initial public offerings in May 2005 to implement a program to convert more than $200 billion of state-owned equity into common stock. The ban was lifted on May 18 this year.

Citic Securities Co. will manage Guangshen's share sale. The securities regulator will review the application on Dec. 4, according to a statement on its Web site.

Guangdong province plans to spend 290 billion yuan expanding its roads and ports over the next five years, as it seeks to win to further investment from overseas companies, Guangdong's communications bureau said in September.

Source:Bloomberg