REFILE-UPDATE 1-Shares in China trainmakers surge after newspaper reports possible merger

Fri Sep 5, 2014 1:10am EDT

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(Corrects China CNR's RIC in first para)

SHANGHAI, Sept 5 (Reuters) - Shares in trainmakers China CNR and CSR Corporation surged on Friday after a newspaper reported the government was looking to merge the two state-owned firms to prevent them for undercutting each other as they chase overseas orders.

Trading in the shares of CNR and CSR was suspended after the Caixin financial newspaper reported China's supervisory body for state-owned companies, the State-Owned Assets Supervision and Administration Commission (SASAC), was looking into a merger.

Trading resumed after both CSR and CNR issued identical statements saying they had not had received any notice from the government in relation to a merger, but investors appeared to shrug off the denial, sending the shares higher.

A merger would boost China's efforts to export its high-tech train technology, analysts said.

At 0346 GMT, shares in CSR were up 2.7 percent, after rising to their highest level since June 2011 earlier in the session. Shares in CNR, which listed on the stock exchange in May, were 2.6 percent higher.

"Investors believe that the competition issue has drawn SASAC's attention and there might be other forms of cooperation in overseas markets," said UOB Kay Hian analyst Lawrence Li. "That's why investors had a positive reaction."

CNR and CSR were created from the now-defunct Ministry of Railways in the early 2000s to stimulate the industry. The two companies, however, have been clashing with each other as they chase orders abroad as part of a government push to promote its high-speed technology.

Last year, CNR complained to the government about CSR's aggressive pricing strategy when bidding for projects in Argentina, many of which CSR eventually won.

The firms, who already dominate the global market by sales, have said they want to increase their overseas sales.

CSR and CNR made 4.6 million and 2.3 billion yuan in overseas sales in the first half of 2014, accounting for 9.2 percent and 6 percent of their revenue respectively.

Other analysts said that a full merger seemed unlikely due to a recent push from Beijing to introduce more competition into some state-owned dominated industries.

"Merging the two seems to be contrary to the general direction," Daiwa analysts Kelvin Lau and Carrie Yeung said. (Reporting by Brenda Goh; Editing by Miral Fahmy)

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