China Zhong Wang's $1 billion HK IPO to test appetite

HONG KONG (Reuters) - Asia's largest maker of aluminum extrusion products will test whether appetite for IPOs has genuinely returned when it begins marketing on Monday for a deal to raise as much as $1 billion, which would make it the world's biggest new issue since August.

The global stock rally over the past six weeks has coaxed a handful of companies to dip their toes into the IPO market after months of inactivity; most recent issues, however, have been in the $100 million-$150 million range.

China Zhong Wang, which makes products such as window frames and railcar components and is a beneficiary of Beijing's 4 trillion yuan ($585 billion) economic stimulus package, is positioned as a Chinese economic recovery play and hopes to take advantage of the recent surge in Hong Kong market turnover.

"The size is not such a big concern now as liquidity in Hong Kong is much better and all signs point to more stability in the market," said Linus Yip, strategist at First Shanghai Securities.

"If they can get the pricing right, this one may be welcomed by the market," he said.

Zhong Wang will begin its investor marketing road show on Monday in Hong Kong, with pricing of its shares scheduled for April 30 and listing targeted for May 8 in a deal to raise between $700 million and $1 billion, people familiar with the deal said.

In January, sources told Reuters that Zhong Wang was looking to raise $500 million, but its fundraising target has increased along with its profit.

The company earned 1.9 billion yuan ($278 million) in 2008 on revenue of 11.3 billion yuan, compared with earnings of 852 million yuan on sales of 7.5 billion in 2007, a person familiar with the deal said.

Last year it generated 41 percent of revenue and 58 percent of its profit from the transport sector, the person said.

"Both electricity equipment and railways are highly influenced by government policy, so the company is in the right sectors to benefit from China's nearly $600 billion stimulus," said Winson Fong, managing director with SG Asset Management.

"The stimulus is spread over two years and that should help the company secure a solid order book," he added.

IMPROVING MARKET

Turnover in the Hong Kong stock market has picked up this month, averaging HK$61 billion ($7.82 billion) per day in the first two weeks of April compared with under HK$45 billion in the first quarter of 2009.

Still, Zhong Wang's IPO is a big chunk of equity for the market to swallow.

Another recent listing, by Chinese liquor and cigarette distributor Silver Base Group (0886.HK), trades below its IPO price despite generating solid investor demand for its offering.

"It will be tough sell, in part due to its size, despite the better markets and stronger liquidity," said Andy Mantel, managing director at Greater China-focused hedge fund Pacific Sun Investment Management, who plans to attend Monday's investor education meeting in Hong Kong.

Citic Securities, JP Morgan (JPM.N) and UBS (UBSN.VX)(UBS.N) are handling the Zhong Wang deal.

One small competitor, Xingfa Aluminum Holdings Ltd (0098.HK), trades at 5.9 times trailing earnings.

Zhong Wang customers China Railway Construction (1186.HK) and China Railway Group (0390.HK) are trading between 16 and 20 times estimated earnings.

IPO MOVEMENT

Global IPO markets have been thawing in recent weeks.

On Wednesday in New York, language training company Rosetta Stone Inc (RST.N) raised $112.5 million when it priced its IPO at $18 per share, which was above its target range of $15-$17, in the third U.S. listing in April.

Also this month, Chinese online gaming company Changyou.com (CYOU.O) raised $138 million in a Nasdaq listing, and Bridgepoint Education Inc (BPI.N) raised $142 million on the New York bourse.

At the high end, Zhong Wang's listing would be the world's biggest since China South Locomotive (1766.HK)(601766.SS) raised $1.57 billion in August 2008, according to Thomson Reuters data. The largest deal thus far in 2009 was Mead Johnson Nutrition Co's (MJN.N) February offering in New York, which raised $828 million.

(US$=HK$7.8=6.8316 yuan)