China Zhongwang plans 2009's largest IPO

By Tony Munroe

HONG KONG (Reuters) - China Zhongwang Holdings, Asia's biggest maker of aluminum extrusion products, began marketing on Monday for a Hong Kong IPO to raise as much as $1.58 billion in what would be the world's largest new listing so far this year.

The company, which generates a large share of its business from the transport sector, including railways, is a beneficiary of Beijing's 4 trillion yuan ($585 billion) economic stimulus package, a big chunk of which is being spent on infrastructure.

The offering is the biggest test yet of investor appetite for new listings since the global meltdown in markets last year, and the fund-raising target is higher than the roughly $1 billion that the company and its bankers had previously considered.

Some market players said Zhongwang's IPO is ambitious.

"The market sentiment has not improved enough to justify this price. It's quite hard to predict how successful the IPO will be. Institutional interest may ensure it is fully subscribed but the stock will probably make a weak debut," said Kenny Tang, associate director with Redford Securities.

"The fundamentals of this company are slightly better than other aluminum companies because it caters to sectors which are being supported by the government," he added.

Zhongwang, a private sector company based in Liaoning province, plans to sell 1.4 billion shares, or nearly 26 percent of its enlarged share capital, at HK$6.80-HK$8.80 each ahead of a May 8 trading debut, according to a term sheet. An overallotment option would expand the deal by 15 percent.

The price range values Zhongwang at 10.4 to 13.5 times forecast 2009 profits, according to a source familiar with the matter, and at the high end would make the company worth about $6.1 billion.

China Railway Construction Corp Ltd (1186.HK) (601186.SS) trades in Hong Kong at 19.4 times forecast 2009 earnings, while China Railway Group (0390.HK) (601390.SS), the country's largest rail and highway builder, trades at about 18.4 times forecast 2009 earnings.

Andy Mantel, managing director of Greater China-focused hedge fund Pacific Sun Investment Management, said Zhongwang's IPO is "a big offering, and not cheap."

Mantel, who bought shares in the last Hong Kong IPO, by Chinese liquor and cigarette distributor Silver Base Group (0886.HK), was among the roughly 250 people to attend an investor luncheon at the Four Seasons hotel in Hong Kong on Monday and said he has not yet decided whether to seek Zhongwang shares.

YEAR'S LARGEST

If successful, Zhongwang's IPO could be the first to raise more than $1 billion since China South Locomotive (1766.HK) (601766.SS) raised $1.57 billion last August.

It could also spur further listings. Dozens of companies put their planned Hong Kong listings on hold last year when the market for new offerings vanished.

"If this IPO makes it, we may see a pick-up in big IPO activity," Redford's Tang said.