Trainmakers deny insider trading charges

A test-running bullet train at the Hami station in Xinjiang Uygur autonomous region. The high-speed railway from Lanzhou, Gansu province, to Urumqi, Xinjiang, is expected to go into service at the end of this year. [Provided to China Daily]

Two State-owned railway vehicle manufacturers denied insider trading allegations in an announcement on Tuesday, saying executives involved were unaware of the reorganization and based their investment decision solely on the prospect of the companies.

Such claims have cast a shadow on the deal, which is expected to create the world's largest train manufacturer by sales, as media reports revealed that more than 20 executives of CNR Corp and CSR Corp and their relatives were found to have bought and sold stocks in each company before the announcement of the merging proposal.

The CSR denied the allegation in a filing to Hong Kong Exchange, stating that the trading by relevant parties was "merely individual investment and has no connection with the reorganization."

The CNR released a similar announcement at the same time, saying management involved had dealt in the CSR shares before they were informed of the merger proposal and their trading were based on the public information and their own analysis of the investment value of the shares.

Insider trading allegation

According to the announcement, eight CNR senior management, including the company's chairman Cui Dianguo, president Xi Guohua, vice president Gao Zhi, board secretary Xie Jilong and their relatives, were allegedly involved.

The merger document showed that Cui Dianguo bought 15,000 shares in CSR at an average of price 5.14 yuan (87 cents) per share and sold 50,000 shares at the price of 5.96 yuan from April to October last year. But the company did not disclose how many shares Cui owned before April.

The largest amount of stocks traded were by Gao Zhi and his relatives. They bought and sold nearly 2 million shares in CSR with total investment exceeding 10 million yuan prior to the trading suspension, according to the information.

Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said the key to determining whether the trades were classified as insider trading depends on how the regulator dictates the formation date of the sensitive information.

"The allegation has attracted public attention and triggered market reaction, which could be viewed as positive progress for China's stock market as it is becoming much more sophisticated and sensitive to potential illegal activities," Dong said, adding that the final result depends on the regulators' investigation.

It remained unclear whether securities watchdog had launched an investigation into the share dealings.

Mega-size merger

Rumors of the merger of CNR and CSR first surfaced in August last year when the two companies engaged in a price war to compete on overseas orders.

The two companies suspended their stocks from trading from October, and announced their merging proposal by the end of last year after two months of government review and preparation.

According to the plan, CSR will issue shares to CNR's shareholders to complete the merger. The two companies soared by the daily limit of 10 percent on Dec 31 once trading resumed.

Wang Mengshu, an academic at the Chinese Academy of Engineering and a supporter of the move, said the domestic market for high-speed trains is quite saturated, so the merger will prevent unhealthy price competition in the world market.

"The new group will have a clear edge over global rivals by being able to optimize the two rail product manufacturers' technological edges, human capital and production capacity," said Wang.