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As rival mainland train makers, there has been fierce competition between CNR and CSR when bidding for overseas contracts. Photo: Xinhua

Shares suspended in train makers China CNR and CSR amid merger talk

Mainland firms China CNR and CSR see trading stopped amid rumours of an announcement

Chim Sau Wai

Shares in the mainland's two biggest train makers China CNR and CSR as well as their listed subsidiaries were suspended from trading yesterday in both Hong Kong and on the mainland, triggering expectations of an announcement on the merger of the two state-owned companies.

H and A shares of CNR and CSR were suspended in the morning pending the release of an announcement containing inside information, the firms said in stock exchange filings. Shares of CSR's indirect subsidiaries, including Hong Kong-listed Zhuzhou CSR Times Electric, Shanghai-listed Zhuzhou Times New Material Technology and Shenzhen-listed South Huitong were also suspended.

The two train makers halted trading in their shares last month after mainland media reported that the authorities were planning to merge them to reduce competition in overseas markets. Back then they denied submitting any plans for a merger.

But CNR also said at the time that reorganisation and merger of state-owned enterprises was subject to the decision of the relevant authorities, referring to the State-owned Assets Supervision and Administration Commission of the State Council.

Analysts expect the trading halt this time to be merger-related as well. "It should be either an announcement or a clarification about the merger," said Wang Zhuoran, an analyst at Nomura Securities.

"A merger might help raise margins of the train makers' overseas businesses as there have been fierce competition between the two when they bid for projects outside China," said Wang.

But others doubt if the merger will bring real synergies. "CSR has been investing more in research and development. If the two companies merge, who is going to manage the new company?" said Gary Wong, an analyst at Guotai Junan Securities.

CNR and CSR shares have jumped 14 per cent in Hong Kong in the past two weeks running up to the suspension. Analysts said the rally is related to recent announcements of overseas contracts.

CNR last week announced it had won a 3.49 billion yuan (HK$4.41 billion) contract to supply 284 subway cars to Boston.

United States media said CNR's bid was "unrealistically low". But Wang said that at an average price of 12 million yuan for each subway car, the price was double that of those sold in mainland China.

This article appeared in the South China Morning Post print edition as: Merger talk as train shares suspended
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