KUALA LUMPUR (Bloomberg) - Chinese companies will finance and build a 620-kilometre rail line spanning the east coast of peninsular Malaysia with construction set to begin as early as next year, the New Straits Times reported.

The construction contract will be awarded to China Communications Construction Co, while a financing agreement will be signed with Export-Import Bank of China during Malaysian Prime Minister Najib Razak's visit this week, the paper said, citing Finance Ministry official Mohd Irwan Serigar Abdullah.

Najib this month said the project will cost an estimated 55 billion ringgit (S$18.3 billion).

China companies including those linked to the government have increased their holdings in Malaysia in the past year, including buying stakes in energy and property assets linked to a troubled state investment company.

The purchases have raised concern that China is helping bail out 1Malaysia Development Bhd., which accumulated billions of dollars of debt since it was set up in 2009.

China is Malaysia's biggest trading partner and has been expanding its economic influence in the South-east Asian nation even as both are claimants of disputed parts of the South China Sea. Najib said this month that Malaysia won't compromise on its sovereignty on the disputed waters even as China becomes increasingly important as its trade partner and a source of tourism receipts.

COMPETITIVE RATE

The decision to seek funding for the rail project from China is due to the favourable terms offered, Irwan was cited as saying in Beijing. While details are being finalised, Malaysia expects a competitive interest rate with a repayment period of 20 years, the paper said.

The east coast rail line will connect eastern cities and towns with the nation's capital. The government hopes to complete the east coast rail deal before the year's end and for construction to start in early 2017, according to the New Straits Times report.

State-owned China General Nuclear Power Corp bought 1MDB's power assets for US$2.3 billion, while the Malaysian fund sold a 60 per cent stake in a property project in Kuala Lumpur to China Railway Engineering Corp and a local partner. The real estate project will host terminals for a planned high speed rail connecting Kuala Lumpur to Singapore, which Chinese companies have expressed interest in building.