UPDATE 1-Train maker China CNR raises $1.2 bln in HK share offer

Fri May 16, 2014 1:25am EDT

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* Offering priced at HK$5.17/share, near low end - sources

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By Elzio Barreto and Daniel Stanton

HONG KONG, May 16 (Reuters) - China CNR Corp Ltd , the world's largest train maker by sales, raised $1.2 billion in a Hong Kong share offering, with pricing coming in at the low end after a recent rally in its Shanghai-listed stock.

Bolstered by expectations of further government investment in high-speed rail networks, China CNR has seen its Shanghai shares jump 8 percent over the past two months and investors saw little reason to price them higher amid weak overall demand for new offerings.

"All the positives have been already priced in the stock," said Stuwart Chen, an analyst at Sun Hung Kai Financial in Hong Kong. "There's no new catalyst for now."

It was the biggest attempt by a Chinese company to tap the Hong Kong market since WH Group scrapped its plans to list last month, with a downturn in equity markets weighing on demand even after the pork giant cut its IPO size by two-thirds.

China CNR sold 1.82 billion new shares, equivalent to 15 percent of its enlarged share capital, at HK$5.17 each, after marketing the offering between HK$5.00 and HK$6.20, sources with direct knowledge of the matter said. It did not immediately reply to requests for comment.

It will use the funds to pay down debt, buy new machinery and invest in new rail projects. The company will start trading in Hong Kong on May 22.

Growing demand for rail services in China helped the train manufacturer log a 10 percent climb in net profit to 4.22 billion yuan ($677 million) last year on a 5 percent increase in revenue to 96.8 billion yuan.

China CNR ranks first in the world in sales ahead of local rival China South Locomotive and Rolling Stock Corp Ltd , also called CSR Corp, and Bombardier Transportation. But its market cap at $7.8 billion lags CSR's $9.9 billion.

It is controlled by state-owned China Northern Locomotive & Rolling Stock Industry (Group) Corp, also known as CNRG, whose stake is falling to about 58 percent from 72 percent before the share offering.

China CNR received commitments worth $100 million from three cornerstone investors, with Dongfeng Asset Management agreeing to buy $40 million worth of shares. Jinxi Axle Company Ltd and China National Machinery Industry Corp, known as Sinomach, each pledged to buy $30 million of shares in the offering.

Cornerstone investors receive a guaranteed allocation in exchange for agreeing to retain their stakes for a set period.

China International Capital Corp (CICC), Macquarie and UBS were hired as sponsors of the deal, with Deutsche Bank and Goldman Sachs also acting as joint global coordinators. Seven other banks were also joint bookrunners.

The banks stand to earn up to a combined $28.8 million in fees from the deal, equivalent to a 1.9 percent underwriting commission and an incentive fee of up to 0.5 percent, according to the prospectus.

($1 = 6.2306 Chinese Yuan) (Reporting by Daniel Stanton of IFR; Writing by Elzio Barreto; Editing by Edwina Gibbs)

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