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China Railway Construction slumps on Saudi rail project loss

SHANGHAI, Oct 26 – Shares in China Railway Construction slumped Tuesday after it said it expects to lose 4.2 billion yuan (623 million dollars) in unforeseen costs on a rail line for Muslim pilgrims in Saudi Arabia.

Shanghai-listed shares of the construction contractor closed down 5.24 percent to 7.6 yuan while its Hong Kong-listed shares dropped 13.98 percent to 9.6 Hong Kong dollars (1.2 US dollars).

Trading in China Railway Construction was suspended on Monday before the announcement.

The company signed a contract worth 12.1 billion yuan in February 2009 with the Saudi government to construct the Al-Mashaaer Al-Mugaddassah metro light rail, according to a statement filed with the Shanghai Stock Exchange.

The monorail project, which links several holy cities including Mecca, is scheduled to open next month, operating at 35 percent capacity. It is due to reach full capacity by May 2011.

However, the project is incurring a significant loss "as the amount of actual work has significantly exceeded estimates made at the time the contract was signed", the company said in the statement.

The firm added its client had substantially increased the transportation capacity of the project for 2010 as compared with the capacity set out in the contract.

An underground pipeline network, land expropriation and relocation managed by the client were substantially delayed.

The company said it would book a 3.6 billion yuan loss on the project in its third-quarter financial results and it is expected to have a "material impact" on its full-year earnings.

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The firm already recorded a loss of 294 million yuan from the project in 2009 and 254 million yuan in the first half of the year, according to the statement.

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