China Trainmakers Seek Approval of Plan to Combine

China’s two biggest trainmakers sought state approval for a plan to combine their businesses, the official Xinhua News Agency reported, a move aimed at boosting exports of the country’s high speed rail technology.

The planned merger between China CNR Corp. and CSR Corp. will create a “giant train manufacturer” to be renamed China Railway Vehicle Corp, according to the report, which cited an unidentified official in the State-owned Assets Supervision and Administration Commission. No other details were reported.

The plan to combine the two trainmakers comes at a time when competitors such as Germany’s Siemens AG and France’s Alstom SA are facing constrained public spending in their home markets. China is competing aggressively for overseas rail projects, targeting emerging markets such as Africa, Eastern Europe and Latin America and Southeast Asia. Premier Li Keqiang has touted the country’s rail equipment engineering and construction companies on overseas trips and signed deals.

The 21st Century Business Herald reported earlier that CNR will delist after CSR buys out its shares via a secondary offering. The merger is very likely to be conducted through a share swap because it is the most practical way and no cash will be needed, Caixin reported Oct. 30, citing an unidentified person close to the two companies.

Two calls to CNR Chairman Cui Dianguo weren’t immediately answered. CSR declined to comment in an e-mail statement, referring queries to the company’s exchange filings.

Shares of CNR and CSR were both halted for trading on the Hong Kong and Shanghai exchanges Oct. 27.

‘Global Competitor’

The two companies had 228 billion yuan ($37 billion) of sales and made $1.84 billion in net income in the 12 months through September, according to data compiled by Bloomberg. CNR and CSR have a combined market value of $26 billion based on their last traded prices in Hong Kong. The two had 172,647 workers at the end of 2013, the data show.

A combination will create “a very strong global competitor,” said Ingo-Martin Schachel, an analyst at Commerzbank AG in Frankfurt, who rates Siemens shares hold. “It would heighten the need for consolidation among the western manufacturers.”

Europe’s biggest engineering company Siemens this year unsuccessfully tried to combine its ailing train operations with Alstom’s transport business as part of an asset swap to buy the French company’s energy assets. Alstom instead sold energy assets to General Electric Co. and will receive the U.S. company’s rail-signaling unit in exchange.

In October, Boston awarded CNR a $567 million contract to supply trains for the city’s subway system, the first deal of its kind for a Chinese company in the U.S. CNR offered the cheapest price among five bidders and a little more than half of the bid by Montreal-based Bombardier Inc.

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