CSR-CNR merger expected to affect subsidiaries, suppliers

Beijing: May 6 was the last trading session of shares of CSR Corporation and China CNR Corporation, China’s two main railway and related equipment makers. Trading in those stocks has been suspended since May 7 ahead of a critical announcement, which will launch the merger of the two companies, Shanghai’s China Business News reported.

Before the suspension of trade, CSR shares closed at 29.98 yuan (US$4.83) and CNR’s at 29.45 yuan (US$4.74), both up about 500% from the end of December when the two companies disclosed the merger plan.

According to an internal document about the merger, the deal is expected to be completed through a stock swap, in which CSR will use one common share in exchange for 1.1 common shares of CNR. The merger plan is under review by the China Securities Regulatory Commission.

After the merger, the new venture called CRRC Corporation is likely to list its shares on the Chinese market in June. The paper said that because stock swaps are complicated, it is hard to predict an exact date for the listing of the new venture.

In addition, the two locomotive equipment manufacturers will have to undergo an even more complex consolidation of their respective subsidiaries and a large group of firms in the parent companies’ supply chains.

Prior to 2000, CSR and CNR belonged to the same company. CSR was in charge of business in southern China and CNR covered northern China.

After they became two independent business groups, they developed their own resources in production, research and development, procurement, and marketing.

Their subsidiaries, however, have overlapping businesses in the market. It means that, with the merger, CSR’s Zhuzhou Times New Material Technology Company and Zhuzhou Times Electric Technology Company will have to consolidate their production of electrical control equipment for electric locomotives with their counterparts under CNR, for example.

The paper said CSR and CNR are planning to consolidate their specifications for products such as train cars and are scheduled to come up with the results in June.

Currently, CSR’s technology comes from its Japanese partners, while CNR uses technology from its European partners. With the assistance of China Railway, CSR and CNR are gearing up for technology integration in a bid to provide better services to clients when the merger takes place, the paper reported.

Due to the impending merger, CSR and CNR have cut their orders to their component suppliers, the paper said. CSR in April cut its orders by almost 50% year on year in April, the report said, citing an unnamed source in the company’s supply chain.

The source said CSR and CNR have cut their orders most likely because they need time to integrate their product specifications.

A CNR executive cited in the paper’s report said that neither CSR or CNR have as yet issued a call for tenders to outsource production of their locomotive equipment as planned, since they are still busy with the merger.