China’s largest train manufacturers CSR Corp and China CNR have agreed to merge in a bid to win more international tenders and consolidate expenses. The two companies announced a merger of equals that will “promote competition globally” in a joint statement to the Hong Kong and Shanghai stock exchanges on December 30.
The merger, which is subject to approval by shareholders of the two companies and regulators, will see CSR issue A and H shares to CNR shareholders at a ratio of 1.1 CSR share per 1 CNR share. The combined revenue of the two companies was RMB192 billion (US$31 billion) at the end of 2013 and the new company, which is to be named CRRC Corporation, will have assets of more than RMB240 billion (US$39 billion).
Based on the exchange ratio and the average prices of the 20 trading days to October 27, when trading was suspended, the exchange prices of CSR A shares and H shares has been determined at RMB5.63 per share and HK$7.32 per share, respectively. The exchange price of CNR A shares and CNR H shares is RMB6.19 and HK$8.05 per share, respectively.
Minle Xu, research analyst at BOCI Research in Shanghai, expects shareholders to react positively to the merger when trading resumes today.
“The new company will be more competitive [especially] in the high-speed segment of the market,” he says. “It will win more tenders internationally, including the US, and will benefit from the ‘one belt, one road’ initiative.”
The “one belt, one road” strategy, also referred to as China’s Marshall Plan, was first announced in 2013 and aims to improve land and maritime connections between China, Central and South Asia as well as Europe. US$40 billion funding has been pledged toward the development plan by China at the ADB Annual Meeting in Kazakhstan.
H shares in CSR and CNR opened 31% and 40% higher, respectively, than their closing price on October 27 in early trading in Hong Kong. In Shanghai, shares in both companies opened 10% higher, reaching the maximum barrier.
