PREVIEW-POSCO E&C's IPO set for frosty investor reception

* Aims to raise up to $926 mln; book-building on Oct 15-16

* Investors cautious about high valuation

(For FACTBOX on other South Korean IPOs in the pipeline, click on [nSEO91629])

By Kim Yeon-hee and Jungyoun Park

SEOUL, Oct 13 (Reuters) - The initial public offering of POSCO's (005490.KS) construction unit, set to be South Korea's biggest IPO since 2006, faces a tepid reception from investors next week that reflects its high valuation and waning hype around IPOs. Enthusiasm is dampening for the IPO, which will raise between $771 million and $926 million, as the benchmark stock index consolidates just below its 15-month high touched last month and a view grows that corporate earnings peaked last quarter.

SK Telecom's (017670.KS) technology affiliate has already had to cut its October IPO size by over half to 480 billion won.

"Companies with a certain size have been too ambitious in setting their IPO price guidances since the start of the second half," said a domestic asset management company fund manager, asking not to be named because of the sensitivity of the matter.

POSCO Engineering & Construction Co Ltd, most of whose revenue is from world No. 4 steel maker POSCO, will be the biggest IPO since Lotte Shopping's (023530.KS) $3.8 billion in 2006.

The builder, 89.5 percent owned by POSCO, is offering 8.99 million shares at 100,000-120,000 won each, putting its IPO value at 898.7 billion to 1.08 trillion billion won ($771-926 million). Trading is expected

The builder of steel and power plants and houses, upped the top of the price range by 9 percent last month to about 11 times estimated 2009 earnings, in line with the construction sector.

Some analysts are upbeat about the $103 billion construction market, citing continued government policies to help the economy, and strong order streams from the Middle East and Southeast Asia.

POSCO's own plans to expand into energy and resources development would also create steady revenue for its construction arm, said Byun Seong-jin, an analyst at Mirae Asset Securities.

But fund managers say POSCO still lags top local builders like GS Construction (006360.KS) or Samsung Engineering (028050.KS) in refinery and gas plants, making its IPO price range look expensive.

The IPO of POSCO E&C, which posted a 189 billion won net profit on sales of 5.4 trillion won last year, follows recent IPOs by spirits maker Jinro Ltd and Tong Yang Life Insurance (082640.KS) which both had to price their offerings below or at the bottom of their ranges.

POSCO is selling 4.73 million shares in the unit to raise about 568 billion won, possibly to fund part of its prospective bid for energy developer Daewoo International (047050.KS).