Exclusive: Canada's Bombardier looks to raise cash from rail business - sources

LONDON (Reuters) - Bombardier is exploring ways to raise money from its transportation unit, potentially worth up to $5 billion, as the Canadian group grapples with huge cost overruns in its aircraft business, six sources familiar with the matter said.

The world's largest manufacturer of planes and trains is working with banks on strategic options for its transportation arm, which provides rail vehicles, signaling and control equipment, the sources said on Friday.

Options would include a possible sale of all or part of the business, as well as an initial public offering (IPO) to retain Bombardier's exposure to the healthier half of the business, three sources said, declining to be named since the matter is private.

A merger with another sector peer such as Germany's Siemens or France's Alstom could also be considered, one of the sources said, as a tie-up between China's biggest train makers CNR and CSR Corp last year is putting pressure on competitors to consolidate and gain scale.

Discussions are in early stages and Bombardier may choose to hold off any action until potential buyers like Alstom and Hitachi <6501.T> have finished wrapping up recent transactions, the sources said, cautioning that no deal was certain.

The discussions come as Bombardier battles with the tumultuous development of its new CSeries jet, where overruns in cost and development have seen the firm's stock fall about 38 percent this year.

The company stunned investors in February when it suspended dividends, replaced its chief executive, and announced a $600 million equity raise as well as up to $1.5 billion in new long-term debt.

Bombardier declined to comment specifically on whether it is considering a full or partial exit of the transportation segment.

Spokeswoman Isabelle Rondeau noted that Bombardier has said it is interested in "participating in consolidation." Rondeau said many options are on the table, but there is no fire sale.

"We're in no rush to do anything," she said. "We will act in a diligent and smart way to make sure that whatever we do will create value for our shareholders.

(Additional reporting by by Robert Smith at IFR, Arno Schuetze in Frankfurt and Allison Lampert in Montreal; Editing by Sinead Cruise and Elaine Hardcastle in London)