• Fri
  • Nov 21, 2014
  • Updated: 10:00pm
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Chinese trainmakers CSR, CNR halt trading after merger report

PUBLISHED : Thursday, 04 September, 2014, 12:12pm
UPDATED : Friday, 05 September, 2014, 12:34am

State-owned train makers CSR Corp and China CNR Corp said yesterday they had not submitted plans for a merger and nor had they received instructions to merge from the authorities.

They suspended trading in their shares yesterday after a mainland media report said the authorities might merge them.

Analysts said a merger would end cutthroat competition between the two companies, especially in the overseas market.

The merger should be a good thing … as some of their products are overlapping
SONG YANG, ANALYST, BARCLAYS

Zhuzhou CSR Times Electric, a supplier to CSR, also halted trading in its shares after they surged 7.7 per cent to HK$30 shortly after the market opened.

The State-owned Assets Supervision and Administration Commission planned to merge the two train makers, said a report in Caixin magazine.

It said CSR and CNR were not keen on the merger and China Railway Corp, the national rail operator, might also be opposed to the idea.

Song Yang, an analyst at Barclays, said: "The merger should be a good thing for both companies as some of their products are indeed overlapping."

Song said CSR's research and development expenses were as much as 4 per cent of the company's revenue, while those of CNR were 2 to 3 per cent.

The Caixin report said there was intense price-cutting between CSR and CNR when they competed for a locomotive project in Turkey in 2011. CNR's bid was priced so low it would not have made any profit from the deal. A South Korean firm eventually won the contract.

The Caixin report also said CSR and CNR had proposed their own merger to Sasac, but the latest proposal came from the State Council and was still at an initial stage, meaning the two companies had not yet negotiated on the matter.

"The management of the two companies of course would not like to see the merger, which means reducing the number of senior managers," Song said. "China Railway might also object to the move because CSR and CNR are its suppliers and the merger would mean less choice for it."

The merger might also lead to a monopoly in the rail industry, and the anti-monopoly bureau of the Ministry of Commerce might want to watch it closely, she said.

CSR's shares last traded at HK$7.14 while CNR's stood at HK$6.81. They will resume trading today.

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