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China’s new train giant makes market splash

Lan Lan
Updated: Jun 9,2015 8:48 AM     China Daily

China Railway Rolling Stock Corp Ltd started trading on the Shanghai and Hong Kong bourses on June 8, becoming the world’s biggest rail conglomerate in terms of market value and sales.

CRRC, a combination of previous rail giants CNR Corp and CSR Corp, saw its shares immediately surge 10.02 percent to 32.4 yuan ($5.22) on the Shanghai Stock Exchange, giving it a market capitalization of 742.5 billion yuan.

The H shares in Hong Kong eventually closed at HK$15.68 ($2.02), up more than 4.5 percent from the last trading day before its suspension.

Cui Dianguo, its chairman, said the merger had created a “model that can be replicated” in future marriages between State-owned companies.

“We completed the process according to international practices and laws and the regulations of the two markets, and have provided a practical model for others planning similar move,” said Cui.

Knitting the two firms together has created the world’s biggest rail conglomerate with around $36 billion in revenue, putting it ahead in value terms of its three biggest Western rivals-Germany-based Siemens AG, Canada’s Bombardier Inc and French multinational Alstom’s transportation equipment division.

CNR generated 104.3 billion yuan of revenue in 2014, while CSR reported sales of 119.7 billion yuan during the same period, according to their annual reports. They had exported their products to 84 countries and regions.

Experts expected the newly combined company to use the scale of its operations and increased profitability to become a world-leading provider of high-end railway equipment with multinational operations.

“Our products have already become competitive in many developed markets. Our next step is to consolidate on that and bring our equipment capability to the rest of the international mainstream market,” said Cui.

CSR’s A shares soared 407 percent and CNR’s 364 percent between Dec 31, when the two announced the merger, and May 7 when they ceased individual trading. The benchmark Shanghai Composite Index gained about 30 percent during the same period.

The merger deal saw CSR issue shares to CNR’s shareholders, at a swap ratio of one CNR share for 1.1 CSR shares. CNR then delisted in both Shanghai and Hong Kong.

The company added in a statement that the merger is also a significant step forward in China’s reform of its State-owned enterprises and analysts now expect further consolidation to follow based on the CRRC model.

Cui was previously chairman of CNR, while Xi Guohua, the president of CNR, is the new entity’s president. Zheng Changhong, the previous chairman of CSR, and Liu Hualong, its president, have both been appointed vice-chairmen of the new company.

Yu Weiping, the previous vice-president of CNR, is now vice-president of CRRC, with specific responsibility for overseas development.

Stocks end at highest level in seven years

Chinese shares rose to the highest level in seven years in volatile trade as bets that MSCI Inc will include mainland shares in its indexes overshadowed weaker shipments data. The ChiNext index of smaller and startup companies tumbled 4.67 percent to close at 3,704.55 points.

Bank of Communications Co climbed to its highest level in six years, pacing gains by financial shares, while Shenzhen Infogem Technologies Co slumped by the 10 percent daily limit, pacing declines on the ChiNext.

The Shanghai Composite Index rose 2.2 percent to 5,131.88 points, its highest since January 2008, extending last week’s 8.9 percent rally.

Data on Monday showed China’s exports in May declined for a third straight month and imports slumped for a seventh. MSCI will on Tuesday decide in New York whether to add China’s locally traded shares in its equity benchmarks.

“The market is looking ahead to whether MSCI will include A shares in its emerging-market indexes and that could create some wild swings in Chinese shares,” said Bernard Aw, a Singapore-based market strategist at IG Asia Pte Ltd.

The Shanghai Composite’s 100-day volatility measure was near its highest level in more than five years.