China CNR, CSR Shares Surge After Government Approves Merger

China CNR Corp. and CSR Corp. surged to record highs in Hong Kong trading after the two Chinese train makers received government approval for their proposed merger.

CSR shares closed up 45 percent at HK$14.80, while CNR shares closed up 42 percent at HK$15.80. The two stocks resumed trading Wednesday after they were halted March 30 pending regulatory approval of the merger. Their Shanghai-listed shares, which resumed trading on Tuesday, rose by their 10 percent daily limits for a second day.

The two train makers are consolidating as part of a Chinese strategy to create industry-leading companies able to compete internationally. With the world’s largest high-speed rail network, China is now making a push to market its rail technology overseas through campaigns such as President Xi Jinping’s “One Belt, One Road” strategy to form a tighter network of trade links across Asia and Europe.

“People are expecting more overseas orders because transportation infrastructure is the key part of the One Belt, One Road plan,” said Lawrence Li, an analyst at UOB Kay Hian Investment Co. in Shanghai.

The China Securities Regulatory Commission and China’s Commerce Ministry both signed off on the deal, the companies said April 3.

Record Income

While the shares were suspended, the companies also reported record profits for 2014. CNR delivered net income of 5.49 billion yuan ($885 million), and CSR earned 5.31 billion yuan as they gained more orders overseas and at home.

Zhi Luxun, a Chinese Commerce Ministry official, said in February that CNR and CSR together signed overseas contracts worth more than $6 billion in 2014, up 60 percent from the year before. Among them, CNR’s $567 million contract to supply trains for Boston’s subway system was the first rail-related deal for a Chinese company in the U.S.

Opportunities also abound closer to home: In his annual work report March 5, Premier Li Keqiang said China will invest more than 800 billion yuan in building domestic railways this year, with major projects weighted toward less-developed central and western parts of the country.

China had 16,000 kilometers (9,950 miles) of high-speed railway lines in operation last year, more than 60 percent of the world’s total, Li said. Daiwa Capital Markets analysts Brian Lam and Kelvin Lau wrote in a January report that another 14,545 kilometers of high-speed rail lines will be launched by 2020, an investment of 1.8 trillion yuan.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE