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New Financing for Urban Rail Transport

During the 10th Five-Year Plan, investment on Chinese urban railway transport construction increased to 200 billion yuan (US$26 billion); the total length of urban railways increased to 550 kilometres. In the 11th Five-Year Plan, 600 billion yuan (US$78 billion) will be invested on 64 railways in 15 cities with a total length of 1,600 km to be built before 2015.

In addition to Beijing, Shanghai, Hong Kong, Tianjin, Guangzhou, Shenzhen and Nanjing, which have already built an urban rail transport system, many other cities such as Chongqing, Chengdu, Xiían, Wuhan, Suzhou, Dalian, Qingdao, Changchun, Shenyang, Harbin are developing urban railway projects.

With many large Chinese cities paying more attention to urban railway projects, some find themselves challenged in terms of capital; new modes of financing are needed, and with great efforts and innovation some are looking beyond traditional governmental investment or loans from banks to new financing modes such as finance leasing, asset securities, BOT (build-operate-transfer) and BT (build transfer).

Our lawyers successfully helped our client, the Tianjin Metro Company, obtain financing via some new financing modes in its Tianjin Subway Line 1 construction. We advised our client in connection with a loan from the Spanish Government by working together with the China Development Bank. We also acted for our client in connection with a large financing package from ABN AMRO through finance leasing. Currently, we are acting for the Tianjin Metro Company in connection with 1 billion yuan (US$130 million) in short-term financed bonds. The issuance of short-term financing bonds plan will be submitted to the People’s Bank of China for evaluation in mid-October, and the public offering will begin in the form of a concentrated stock allocation on the inter-bank bond market by the end of November.

The following is a brief introduction to short-term financing bonds.

Short-Term Financing Bonds

The term “short-term financing bond” (hereinafter referred to as financing bonds) as mentioned in the Measures for the Administration of Short-term Financing Bonds (Measures) refers to a negotiable instrument of debt, which is issued by an enterprise, under the conditions and procedures as specified in the Measures, in the national inter-bank bond market for the purpose of guaranteeing the payment of principal plus interest as agreed to between the parties concerned. It is a short-term loan, and the loan term shall not exceed 365 days.

Advantages of Short-Term Bonds

Short-term financing bonds issuance is a new financing option for urban infrastructural enterprises since they can directly and quickly obtain financing in inter-bank bonds on the market at a low cost. The direct financing channel can save money, increase proceeds, improve management, combine resources, speed up projects, avoid risks arising from relying on a single financing channel, and help diversify financing channels in general.

Short-term financing bonds bear low risks despite low interest costs (only 2.9 percent). Banks getting involved can obtain a return on investment, including principal and interest back in one year. Therefore, it is also a good choice for banks to participate in short-term financing bonds: on one hand, banks can get along well with these enterprises; on the other hand, they can make the best use of idle funds and get large proceeds.

Wang Jihong , Lawyer

Professional fields: Urban Infrastructure

Development and

Real Estate

Environmental and Resource Protection

Government

Legal Affairs

Ms. Wang is a renowned lawyer in the field of urban infrastructure development in China. She has offered legal services to a number of national major construction projects, especially concession projects. These projects cover multiple fields, including public utilities construction projects, rail transportation projects, highway and bridge projects, energy projects and city planning projects such as CCTV New Site, The National Museum of China and the National Indoor Stadium.

Tel: +86 10 5870 0886  

E-mail: jwbj@jianweilawyer.com