April 29, 2015 / 8:03 AM / in 2 years

China trainmakers seek controlling stake in Bombardier-sources

* CNR, CSR have been in contact with Bombardier - sources

* China seeking foreign access for its high-speed trains-sources

* Bid may face political opposition in Canada as elections near

By Benjamin Kang Lim and Matthew Miller

BEIJING, April 29(Reuters) - 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 can not 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.

A purchase of Bombardier's rail assets would "open the doors for the Chinese to all Western train markets," one of the sources with direct knowledge of the situation said.

"It would be the most concrete example of China executing on its 'one belt, one road' strategy," the source said, referring to China's aim to create a modern Silk Road economic belt through a network of infrastructure links through Central, West and South Asia to Europe and Africa.

Yet a Chinese bid could face political opposition in Canada, which is due to hold a general election in October. The state government in Quebec, where Bombardier is based, is generally hostile to foreign takeover bids.

A purchase of a stake in the Bombardier unit by Chinese companies would require approval from the Ministry of Commerce, the National Development and Reform Commission and the China Securities Regulatory Commission as well as European Union, U.S. and Canadian regulators.

In February, a CNR official told Reuters that the firm was interested in buying foreign rail-linked technologies and had been in touch with some companies.

Bombardier, whose presence in China tracks back to 1954, currently has a number rail joint ventures in the country, three of them with CNR and CSR units. (Additional reporting by Allison Martell, Amran Abocar and Euan Rocha in Toronto, Denny Thomas in Hong Kong, Pamela Barbaglia in London, Brenda Goh in Shanghai; Editing by Lisa Jucca and Rachel Armstrong)

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