The merger of China's top two train makers will create a "world-leading" rail supplier to compete with foreign players, they said, as enthusiastic investors sent their share prices surging Wednesday.
State-owned firms China CNR Corp. and CSR Corp. will unite into a single huge conglomerate, preventing in-fighting between the two as China vies for lucrative rail contracts overseas against industry giants such as Germany’s Siemens and Bombardier of Canada, analysts said.
In Hong Kong, CNR shares soared 45.17 percent to HK$11.12 while CSR surged 32.32 percent to HK$10.44 in a half-day of trading before the New Year holiday.
In Shanghai both firms rose by the market's daily 10 percent limit by midday, with CNR reaching 7.10 yuan and CSR 6.38 yuan. Shares of the companies had been suspended for two months pending formal announcement of the merger, which was flagged by Chinese media in October.
"Through the merger, CSR and CNR propose to build jointly a brand-new, multinational world-leading supplier of high-end equipment and systems solutions with rolling stock at its core," the companies said in a joint statement.
"The merger is expected to improve efficiency in the use of resources, effectively reduce operating costs and realise the internationalisation strategy, thereby promoting competition globally," it said.
CNR gained recognition in October by securing a deal to supply metro trains to the US city of Boston.
Separately, CSR was part of a consortium that won a $3.75 billion high-speed railway contract from Mexico in early November, but the deal was cancelled shortly afterwards amid questions over the legality of the bidding process.
CSR is also known for a 2011 scandal in which one of its high-speed trains crashed near the Chinese city of Wenzhou, killing 40 people and sparking an investigation that found evidence of bribery in railway construction.
- Fast track -
The merger still requires approval by shareholders and government agencies, the statement said. In the all-share deal, CSR will issue new stock to existing CNR shareholders to absorb the other company.
The newly-merged entity will be called CRRC Corp., it said. The firms actually share the same origin, a rail vehicle manufacturer spun off from the former railway ministry in 2000 and split into two.
Analysts said the new company could potentially undercut rivals on prices by becoming more efficient, while avoiding the original firms being rivals for the same deals as in the past.
"The merger will now give China an edge for overseas contracts without them competing against each other," BOC International analyst Shen Jun said.
But he added merging the two firms' operations could take some time.
"They won't necessarily have an edge over others in terms of technology or production in the short term because it will still take a long time for the two companies to combine their technology and personnel," Shen said.
The two firms control the market for high-speed rail in China, each producing trains capable of travelling up to 380 kilometres (236 miles) per hour, the official Xinhua news agency said. Together they also account for 80 percent of goods trains and the majority of subway trains.
China's high-speed rail network is the largest in the world with more than 11,000 kilometres (6,820 miles) of track in service during 2013, with the total expected to reach 16,000 kilometres (9,920 miles) by 2020, according to official media.