China Rail Sets Shanghai IPO Price at Top of Range

China Railway Group, the world's third-biggest construction contractor by revenue, set its Shanghai IPO price at the top of the range on Friday, after attracting record interest in its US$5.5 billion Hong Kong and Shanghai public offering.

China Railway, enjoying a building boom in the world's fourth-largest economy, set the issue price at 4.8 yuan to raise up to 22.44 billion yuan (US$3 billion) in Shanghai through the sale of up to 4.675 billion shares. It is also selling 3.326 billion shares in Hong Kong.

The Shanghai IPO attracted 3.383 trillion yuan ($457 billion) in subscriptions, beating the previous record for IPO shares in PetroChina, China's largest oil producer, in October.

China Railway shares will list in Shanghai on Dec. 3 and in Hong Kong on Dec. 7.

China, aiming to ease bottlenecks caused by its surging economy, earmarked more than 5 trillion yuan ($673 billion) for transport infrastructure spending in its 2006-10 five-year plan, including 1.25 trillion yuan for railways, or four times the amount under the previous five-year plan.

Since 1949, China Railway has built 27,000 km (16,780 miles) of railways, 11,000 km of highways, dozens of power stations and airports and more than 35 million sq m of industrial buildings, according to its Website.

The state-owned company is also looking abroad, to Africa and South America, to boost its overseas revenue to 20 percent of the total in five years, from less than 5 percent now.

The Shanghai IPO price is 26.7 times the company's forecast 2007 earnings per share, and is at the top of an indicative price range of 4.0 yuan to 4.8 yuan.

Long Hua, analyst at Haitong Securities, expects China Railway shares to jump 56 percent to 7.5 yuan on their debut.

Underwriters BOC International, UBS and JP Morgan on average expect the company to increase net profit by 25 percent to 2.56 billion yuan (US$345 million) in 2007, and by a further 68 percent to 4.3 billion yuan in 2008, powered by accelerated railway investment in China.

Nine cornerstone investors are taking part in the Hong Kong offering, subscribing for a combined US$408 million worth of shares. China Investment Corp, China Life Insurance's parent company, and Henderson Land chairman Lee Shau Kee are among the investors.

China's benchmark Shanghai Composite Index fell 4.4 percent on Thursday, closing below 5,000 points for the first time in three months.

The market, weighed down by concerns over high stock valuations, tightening policies and fears of a U.S. economic slowdown, has dropped by nearly a fifth since hitting a record high on Oct. 16.