UPDATE 1-China Railway Constr plans $3.6 bln Shanghai IPO

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By Kennix Chim

HONG KONG Feb 22 (Reuters) - China Railway Construction Corp plans to raise up to $3.6 billion from the Shanghai portion of its IPO, which will be followed by a Hong Kong offer, sources involved in the deal said on Friday.

China, aiming to ease bottlenecks caused by its surging economy, earmarked 1.25 trillion yuan ($175 billion) for railway infrastructure investment in its five year plan for 2006 to 2010, nearly quadruple spending in the previous five-year plan.

The firm is offering 2.8 billion A shares, or 25.93 percent of its enlarged share capital, at a proposed price range of 8.00 to 9.08 yuan per share, two sources with direct knowledge of the deal said.

If its A shares price at the top of the range, the 25.4 billion yuan ($3.6 billion) raised will exceed the 22.44 billion yuan raked in by bigger rival China Railway Group (601390.SS) (0390.HK), becoming the mainland markets' ninth biggest IPO.

The price range for the IPO's Hong Kong portion will be fixed later and could surpass the domestic A-share offering, which will be available only to select foreign investors.

State-run China Railway Construction, one of the country's two biggest railway builders, plans to sell 1.706 billion H shares in Hong Kong.

The Shanghai listing is expected on March 10 while the Hong Kong listing is slated for March 13, the sources said.

The Hong Kong listing is being handled by Citigroup (C.N) and Macquarie Bank (MQG.AX) while CITIC Securities (600030.SS) is underwriting both the Hong Kong and Shanghai portions of the IPO.

Proceeds will be used to buy construction equipment, expand machinery production, develop property, finance construction of a passenger rail line and repay loans.

Citigroup and Macquarie expect the company to increase net profit 88 percent to 2.28 billion yuan in 2007, and forecast a further 82 percent increase to 4.16 billion yuan in 2008, boosted by heavy railway investment and robust growth in the firm's overseas construction business.

China Railway Construction and China Railway Group are a duopoly in the country's railway construction industry, while China Communications Construction (1800.HK) is its monopoly in port construction.

Citigroup said in a report that China Railway Construction faced risks from raw material cost increases, heavy reliance on government spending and lack of diversification.

Railway and road construction accounted for 77 percent of the firm's 2006 revenue. Other businesses include surveying, design and consultancy, manufacturing, property development and logistics. (US$1=HK$7.8=7.1431 yuan) (Reporting by Kennix Chim; Editing by Edmund Klamann)