WilmingtonBiz.com reports that CRRC Yangtze Co. Ltd., owner of 22% of Vertex, claims nearly all of the $45.4 million in debt listed in the petition filed in U.S. Bankruptcy Court in Delaware. Two other Chinese companies—Wuhan Kemai Machinery Manufacturing Co. Ltd. and Wuhan Flying Free Logistics Co. Ltd.—list debts of $92,561 and $373,273, respectively.
The involuntary Chapter 7 petition generally is a device for liquidation to pay off debts.
Vertex announced in 2014 it would enter the freight-car business at a former crane manufacturing plant, creating 1,300 jobs—although the WilmingtonBiz report says the company never employed more than 200. It eventually closed in 2018.
CRRC’s move to become part owner of the company drew calls for a congressional investigation in 2016. CRRC and Majestic, a Hong Kong-based private equity firm which took a 45% stake in the company, were eventually cleared to complete the deal following a review by the Committee on Foreign Investment in the United States.
COMMENTARY: Lesson Learned
The lesson for the Railway Age audience is that well-intentioned local job creation excitement, plus a focus on U.S. Congressional oversight about China’s entrance into the U.S. freight car building market, was likely misplaced energy.
It appears relatively little was done about fundamental market entry risk analysis. Where was the market entry and sizing due diligence?
Now, investors are looking around for recovery of some kind from someone. Apparently no one was tasked with prudently protecting the investors with a SWOT report as to too many builders.
Who is your economist?
Need more background? Get to the March 2020 Rail Equipment Finance session and network with folks that understand this market.
Independent railway economist, Railway Age Contributing Editor and FreightWaves author Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age and Freightwaves. As always, contrary business opinions are welcome.”