Merging China Firms Consider Buying Bombardier Train Business

Deal could be CSR and CNR’s biggest overseas purchase

ENLARGE

Employees and guests tour a Bombardier LRV train at the manufacturing facilities in Toronto,Canada, May 29, 2012. China’s CSR and CNR are considering buying a controlling stake in Bombardier’s train business. PHOTO: REUTERS

By 

NISHA GOPALAN and

 

PR VENKAT

April 30, 2015 4:14 a.m. ET

Chinese locomotive makers CSR Corp. and China CNR Corp. are considering buying a controlling stake inBombardier Inc.’s train business, people with knowledge of the matter said, in what could be the merging state-owned companies biggest overseas foray.

CSR and CNR, two halves of a state duopoly that makes and sells trains, including high-speed trains, is in the midst of merging to create a company that can compete overseas for contracts. The two companies currently sell their trains mainly in China and increasingly in developing markets, but have ambitions to be a bigger player globally.

Any plans to bid would only come after a continuing merger between the two and the creation of a new company, CRRC Corp., is complete, the people said.

Bombardier, which makes both trains and planes, hasn’t launched a formal sale, the people said, but the company has appointed banks to look into prospects for its train unit, Bombardier Transportation.

They said CSR and CNR aren’t alone in weighing a bid for the train maker, with several Western and Japanese train makers also vying to buy the Canadian firm’s unit. Berlin-based Bombardier Transportation is one of the three biggest makers of rolling stock globally, along with France-based Alstom SA and Germany’s Siemens AG.

The Canadian owned-company makes high-speed trains, which CNR and CSR also make for China, the world’s largest network of such fast trains. Bombardier Transportation’s 2014 revenue was US$9.6 billion, less than a third of the 222 billion yuan (US$36 billion) in revenues by CSR and CNR combined that year, according to analysts at Barclays.

Buying Bombardier Transportation would give the combined CSR-CNR company instant access to one of the West’s biggest train makers and validate its continuing merger, part of a series of initiatives by Beijing to create national champions and reform slow-moving bureaucracies.

China’s leadership is currently studying options to consolidate its oil industry, for instance, while some companies are looking to inject a more capitalist flair into their firms by bringing in foreign investors.

CSR and CNR declined to comment.

The two government-controlled companies, listed in both Shanghai and Hong Kong, have a total market capitalization of around US$127 billion, according to S&P Capital IQ. The two companies have already received government approval for the creation of CRRC, with the combination set to be complete next month.