The Ministry of Railway has planned to issue railway bonds worth 40 billion yuan this year to meet the country's capital need in railway construction.

Once approved by the Central bank and the State Development and Reform Commission, it will be the largest railway bond issue since China launched this kind of bond in 1995.

The bond term, interest rate and major underwriters are yet to be decided, but it is certain that all the funds raised will be used for railway construction, the Xinhua Daily Telegraph reported on Sunday.

Previous reports from the Ministry said China would need 1.5 trillion yuan in railway construction from 2006 to 2010. The past two years alone has seen the commencement of 89 construction projects whose aggregated investment is estimated around 600 billion yuan.

To alleviate the capital shortage, the Ministry is seeking to establish a more effective financing system which can make better use of foreign direct investment, bank loans and equity markets at both home and abroad.

Among all above-mentioned financing channels however, bond issue has been viewed as the most convenient way to close the capital shortfall for having little risks and relatively higher interest rates.

The Ministry of Railway has issued 10 railway bonds since 1995, raising a total of 28.662 billion yuan.

In the next five years, the Ministry will also explore and establish a more effective way to utilize social security funds and insurance funds. A special investment fund for railway industry is being deliberated. Besides, several share-holding companies will be set up to get listed in either home or overseas securities market.

Source: Xinhua