The China Railway Signal & Communication Corporation (CRSC), the largest rail transportation control system solution provider in the world in terms of revenue, has debuted on the Hong Kong Stock Exchange and is set to use the new funds for an aggressive expansion programme. CRSC’s 15,000+ employees have led China’s development of control system technologies since the 1950s and have independently developed CTCS-3 (China Train Control System-3) high speed train control technology and a form of CBTC (Communication Based Train Control). Their website lists 700 registered patents and 186 pending patent applications. The Initial Public Offering is the fourth largest seen in Hong Kong this year, and although the performance was initially flat, raised HK$11 billion ($1.4 billion) and the IPO values the company at around HK$55 billion. So what will CRSC do with this injection of funds?
The company is built around three key business lines: design and integration, equipment manufacturing and system implementation of rail transportation control systems. With a strong focus on product design and R&D and through its “three-in-one” business model, the company makes a play of calling itself the “the only rail transportation control system solution provider in the world who is capable of independently providing the entire suite of products and services” across the industry value chain. The percentages for where the investment will go are confirmed as the following:
- Approximately 30% (equivalent to approximately HK$3,668.0 million) will be used for long-term Research & Development, among which, 72% will be used on the R&D investment for railway and urban transit control systems and the establishment of relevant research centres, 15% on the R&D of communication information technology, 7% on the R&D of modern tram technologies and 6% on others.
- Approximately 20% (equivalent to approximately HK$2,445.3 million) will mainly be used for fixed asset investments; CRSC plans to take the opportunity to relocate its current production bases and upgrade equipment for better product quality assurance. The Company also plans to further expand its business into fields such as Smart Cities and electronic information, to complement its industry value chain, to fulfil its corporate development strategies and to meet the market demands.
- Approximately 20% (equivalent to approximately HK$2,445.3 million) will be used for general domestic and overseas acquisitions; in particular, the Company will focus its efforts in European and North America market;
- No more than 20% (equivalent to approximately HK$2,445.3 million) will be used for investment in rail transportation PPP projects that are in compliance with the government policies; and
- No more than 10% (equivalent to approximately HK$1,222.7 million) will be used to supplement working capital.
These developments are in line with an effort across the Chinese signalling and rail industry to push further overseas, particularly into Africa and Latin America – aided by a government similarly focussed on growing power in those areas. And undoubtedly will spell further competition for rival signalling and train control companies already coming under pressure from the power of Beijing.
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