China’s big train mak­ers re­unite in quest for over­seas business

China Daily (Canada) - - FRONT PAGE -

The re­cent merger of China’s two largest train mak­ers — CNR and CSR — will put the com­bined company on bet­ter foot­ing as it pur­sues a roar­ing high-speed rail mar­ket glob­ally.

Ac­tu­ally, for­eign business was the rea­son for the merger, which may have been set back this week amid re­ports of al­leged in­sider trad­ing at both com­pa­nies.

The stock-swap deal agreed to on Dec 30 sought to avoid “in­fight­ing” for over­seas business, Xin­hua re­ported. Those over­seas prospects are grow­ing, as Cal­i­for­nia re­cently broke ground on a planned $68 bil­lion high-speed rail net­work.

CNR and its Tang­han Rail­way unit teamed up with Sun­Group USA to make a pitch in Oc­to­ber for the Cal­i­for­nia project. A US-based company must be in­volved, and the trains have to be as­sem­bled in the United States, ac­cord­ing to fed­eral law.

“The new group

will be more con­fi­dent to knock on the doors of de­vel­oped coun­tries that once did not take China’s rail­way prod­ucts very se­ri­ously,” Feng Hao, a trans­porta­tion re­searcher at the Na­tional De­vel­op­ment and Re­form Com­mis­sion, told China Daily last month.

China CNR Corp Ltd and CSR Corp Ltd — both Sta­te­owned en­ter­prises in Beijing — were pre­vi­ously one company: the China Na­tional Rail­way Lo­co­mo­tive and Rolling Stock In­dus­try Co, owned by the Min­istry of Rail­ways (now the China Rail­way Corp). The min­istry split the company in two in 2000, with each given 40 train fac­to­ries, parts plants and re­search in­sti­tutes. The Yel­low River de­fined the sales bound­aries.

The merged company — China Rail­way Rolling Stock Corp Ltd — will go by the ab­bre­vi­ated name CRRC.

“The US may be the next big mar­ket for China” rail com­pa­nies, wrote Vic­to­ria Li, China in­dus­trial eq­uity an­a­lyst for BNP Paribas, in a Jan 8 re­search re­port sent to China Daily. “Although it would prob­a­bly take decades for the US to com­plete its HSR (high­speed rail) sys­tem, it would be the big­gest HSR mar­ket in the world,” wrote Li, who called the com­bined Chi­nese com­pa­nies a “rail jug­ger­naut.”

The global as­pi­ra­tions for CRRC, though, got a neg­a­tive jolt this week. Al­leged in­sider trad­ing by se­nior ex­ec­u­tives at CNR and CSR cast doubt on the deal, which is ex­pected to cre­ate the world’s largest train man­u­fac­turer by rev­enue ($32 bil­lion).

Me­dia re­ports have sug­gested that more than 20 ex­ec­u­tives of the two com­pa­nies and their rel­a­tives have bought and sold stocks in each company dur­ing the six-month quiet pe­riod prior to their trad­ing sus­pen­sion in Oc­to­ber, be­fore the merger plans were made pub­lic.

CNR said se­nior man­age­ment of both firms, in­clud­ing CNR’s pres­i­dent and chair­man and their rel­a­tives, traded shares in the six months be­fore trad­ing was sus­pended on Oct 27, Reuters re­ported Wed­nes­day.

“The trad­ing of shares by such rel­e­vant par­ties was car­ried out based on their judg­ment on the se­cu­ri­ties mar­ket,” a CSR state­ment said. “This is merely in­di­vid­ual in­vest­ment and has no con­nec­tion with the re­or­ga­ni­za­tion.” The com­pa­nies said that they had con­tacted the China Se­cu­ri­ties De­pos­i­tory and Clear­ing Corp about the trades.

CNR shares fell 5.3 per­cent Mon­day, while CSR were down 1.36 per­cent on the news re­ports. The stocks had surged by the 10 per­cent daily limit six con­sec­u­tive trad­ing days since they re­sumed trad­ing Dec 31.

Bar­ron’s re­ported on­line Tues­day that lo­cal gov­ern­ments in China, which buy trains from both com­pa­nies for their ci­ties’ rail sys­tems, fear the new gi­ant could in­crease prices, and they may try to scut­tle the deal. China Daily also re­ported Thurs­day that the merger could face op­po­si­tion from other coun­tries that com­pete in the rail­way in­dus­try.

Train mak­ers such as Canada’s Bom­bardier, Ger­many’s Siemens, France’s Al­stom, and Ja­pan’s Hi­tachi and Kawasaki Heavy In­dus­tries “are ner­vous about los­ing business to the new Chi­nese rail­car ti­tan, which will be firmly sup­ported by the pol­i­cy­mak­ers in Beijing”, the Nikkei Asian Re­view wrote on Jan 8.

“Although we be­lieve the merger of CSR and CNR will even­tu­ally be ap­proved by share­hold­ers and rel­e­vant au­thor­i­ties, the com­ple­tion date is not yet cer­tain, and is the key de­ter­mi­nant of earn­ings growth” for CRRC in 2015, Li wrote.

CSR makes one of the fastest trains in the world — the CRH380A — which has reached speeds of 302 mph in test runs.

The bul­let train won’t need to go nearly that fast in Cal­i­for­nia. The top speed on the Golden State’s tracks will be 220 mph.

By 2029, the Cal­i­for­nia sys­tem is ex­pected to pro­vide ser­vice from San Francisco to Los An­ge­les in less than three hours. The sys­tem even­tu­ally will ex­tend to Sacra­mento and San Diego, to­tal­ing 800 miles with up to 24 sta­tions.

In Oc­to­ber, CNR MA, a joint ven­ture be­tween China Changchun Rail­way Ve­hi­cles Co and CNR, won a $567 mil­lion con­tract to sup­ply 284 rail cars for Bos­ton’s sub­way sys­tem. Con­tact the writer at williamhen­nelly@ chi­nadai­lyusa.com

A KAI/ASIANEWS

A bul­let train

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