China trainmakers seek control of Bombardier's rail unit

CRH380 (China Railway High-speed) Harmony bullet trains are seen at a high-speed train maintenance base in Wuhan,Hubeiprovince, Dec 25, 2012. [Photo/Agencies]

China's top two trainmakers have been in discussions with Bombardier Inc about possibly buying a controlling stake in the Canadian company's railway unit, two sources with direct knowledge of the matter said.

China CNR Corp Ltd and State-owned CSR Corp Ltd, now in the process of merging to create the world's biggest railway company, are exploring a stake purchase of the Bombardier unit, complementing China's plan to sell its high-speed rail technology abroad, the sources said.

But discussions cannot move forward until after the Chinese trainmakers complete a planned $26-billion merger next month, said a person close to one of the Chinese companies.

Canada's Bombardier has been exploring a possible sale of all or part of its railway business as it seeks to pay for the huge cost overruns in its aircraft business, Reuters reported this month.

The Canadian company is working with banks on strategic options, that also include a possible initial public offering either in Germany, where the business is based, or in Britain. Bankers value a possible deal at up to $5 billion.

"I have no knowledge of this matter," said Xu Houguang, a CSR executive. Zhang Yong, an executive at CNR, also said he had no knowledge of this matter.

Bombardier spokeswoman Isabelle Rondeau declined to comment: "We will not comment on any speculation."

In February, Bombardier said it "will explore other initiatives such as certain business activities' potential participation in industry consolidation".

CNR and CSR are already the world's largest train makers by revenue but the bulk of their sales are from domestic contracts.

Yet a Chinese bid could face political opposition in Canada, which is due to hold a general election in October.

The federal government would most likely take a skeptical view of any such bid, especially if it happened during an election year, said a source familiar with government thinking. The government of Quebec, where Bombardier is based, could seek job guarantees.