June 11 (Bloomberg) -- CSR Corp., China’s biggest trainmaker by market value, is unlikely to act on proposed acquisitions in Europe this year because of concerns about the region’s economy and the future of its single currency.
“The debt crisis in Europe is still developing and I think there is a risk of the economy getting worse,” Chairman Zhao Xiaogang said in a June 8 interview in Beijing. “I want to stay calm and watch for a while.”
The debt crisis threatens the long-term profitability of companies in Europe and it could cause the euro to tumble, which would cut the value of earnings repatriated to China, Zhao said. CSR, based in Beijing, said in April that it was in talks on possible deals in Spain, Italy, Germany, the U.K. and France, to add new technologies and to pare its reliance on domestic sales.
“It makes sense that CSR is being prudent, given the economic and credit environment in Europe right now,” said Han Weiqi, a Shanghai-based analyst at CSC International Holdings Ltd. “CSR should have little worries about other European competitors stealing a march on them, as the overall environment is tough.”
Zhao declined to comment on specific deals that the company had considered. Italian newspaper Il Sole 24 Ore said in April that the group had bid for stakes in Finmeccanica SpA’s train-making unit AnsaldoBreda and signal-maker Ansaldo STS SpA.
The euro has weakened 16 percent against the yuan in the 12 months through June 8, as European leaders struggle to revive growth and to reign in debt crises in countries including Spain and Greece. Spain requested a bailout of as much as 100 billion euros ($125 billion) to rescue its banking system over the weekend.
The euro crisis “means we may be able to buy an asset at lower price, but the economic slowdown also threatens companies’ survival and development,” Zhao said. “It is a dilemma.”
CSR will focus its export push on Southeast, Central and Western Asia, possibly including the formation of overseas ventures, Zhao said. The company, which also makes carriages, wagons and wind turbines, signed an agreement to assembly shunting locomotives in Kazakhstan last month.
The trainmaker will have “no problem” doubling overseas orders this year, and foreign markets will account for 10 percent of sales, Zhao said. The company wants to generate 20 percent of sales overseas by 2015 from 7.7 percent last year, he said in April.
Still, high-speed trains are unlikely to form part of China’s rail exports for at least five years because many overseas projects, including one in California, are still at an early stage, Zhao said. The company said in 2010 that it planned to work with General Electric Co. on bids for high-speed contracts in the U.S., including the California line.
In China, rail construction has slowed following a fatal high-speed crash in July and the ousting of a minister in a corruption probe in February 2011. The government is now under taking reforms including public tendering and the introduction of private capital into rail projects.
CSR has dropped 16 percent in Hong Kong since the July 23 crash, matching the decline for the benchmark Hang Seng Index. It rose 2.1 percent to HK$5.82 today. In Shanghai, the trainmaker has tumbled 29 percent since the accident, while rival China CNR Corp. has fallen 33 percent. The benchmark Shanghai Composite Index has lost 17 percent.
CSR will consider investing in urban rail projects in second or third-tier cities in China to help boost sales, Zhao said. The trainmaker is also in talks with the rail ministry as it works to develop a vendor-financing business, he said.
“We hope the country can have a breakthrough in this area,” Zhao said. He didn’t elaborate.
To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at firstname.lastname@example.org