UPDATE 2-China railway builder HK IPO flies, others line up

(For expanded IPO diaries, click <HK/IPOMENU> and <CN/IPOMENU>) (Adds fund manager comment and details)

By Kennix Chim

HONG KONG, March 6 (Reuters) - China Railway Construction Corp priced the Hong Kong portion of its IPO at the top of a range, raising a total $5.4 billion, after drawing record demand for a share sale valued at a discount to its listed peers.

Another firm, Chinese developer Evergrande Real Estate, kicked off an investor roadshow on Thursday for a Hong Kong initial public offering to raise up to $2.1 billion in a market that has cooled on mainland real estate firms as Beijing applies tightening measures to the sector.

State-run China Railway Construction (1186.HK), on the other hand, is the beneficiary of China's infrastructure spending spree. Fund managers said other IPO hopefuls, such as snack maker Want Want China Holdings, face more sceptical investors amid shaky markets.

Another firm, Chinese oil rig manufacturer Honghua Group, is set to make its debut on Friday in Hong Kong after raising $409 million in a deal priced mid-range.

"Investors like Chinese infrastructure plays as the country will spend heavily on this sector," said Lawrence Lo, vice president at Lombard Odier Darier Hentsch (Asia) Ltd.

China Railway Construction saw orders for 80 times the shares on offer to institutional investors, and was 291 times covered in the retail portion, for orders totalling $236.6 billion.

It ranks as the most popular IPO ever for Hong Kong individuals, ahead of e-commerce firm Alibaba.com (1688.HK) and ICBC (1398.HK)(601398.SS), China's largest lender.

The company is set to debut in Shanghai on Monday and in Hong Kong next Thursday.

EXECUTION RISK

Evergrande's IPO price range values the firm, the second largest developer in China by land bank, at 7.6-12 times forecast 2008 earnings, a discount of 28-53 percent to prospective 2008 net asset value, a fund manager said.

Rival Country Garden (2007.HK) trades 15 times 2008 earnings.

China is discouraging developers from hoarding land, so those with large projects are under pressure to hurry them to market.

"Evergrande faces execution risk. Its development pace is so fast that it needs money for its huge capital expenditure," said Meko Zhu, analyst at Ginger Capital Management Ltd in Hong Kong.

"As China is imposing tightening measures for the property sector, it is a high risk industry," she said.

Goldman Sachs (GS.N), one of its IPO sponsors, said in a report that Evergrande faces significant execution risk brought by its rapid expansion over the past two years. It estimated the firm increased project completion targets from 0.5 million square metres of gross floor area in 2007 to about 8 million in 2008.

"Any execution slippage will lead to higher earnings fluctuations and low investment returns compared with peers," Goldman Sachs wrote.

Evergrande, with land reserves in 22 Chinese cities, is offering 2.96 billion shares at a range of HK$3.50-HK$5.60 each, a term sheet said. The Guangzhou-based residential specialist has land reserves of 45.8 million square metres.

It earned net profit of 1 billion yuan ($140.7 million) in the first nine months of 2007, compared with 302 million yuan in the same period of 2006, and plans to use the IPO proceeds to pay for outstanding land premiums, finance existing projects and acquire additional land reserves.

The firm expects to fix its IPO price on March 20 and is scheduled to list on March 28, under the symbol "3333" (3333.HK)

Goldman Sachs, Merrill Lynch MER.N and Credit Suisse (CSGN.VX) are sponsoring the deal.

RECORD RESPONSE

Hong Kong's benchmark index .HSI has dropped 15 percent so far this year after jumping 39 percent last year, while China's benchmark index .SSEC has dropped 17 percent after nearly doubling in 2007.

China Railway Construction sold 1.7 billion shares for the Hong Kong portion of its IPO at HK$10.7 apiece, compared with a range of HK$9.93 to HK$10.7, said sources who were not authorised to speak on the deal, to raise $2.3 billion.

That values the firm at 28.67 times forecast 2008 earnings. Rival China Railway Group (0390.HK) (601390.SS) trades at 36.8 times forecast 2008 earnings, while top ports builder, China Communications Construction Group (1800.HK), trades at 33 times.

China Railway Construction raised $3.1 billion in the Shanghai portion of its offering, which also priced at the top.

China CITIC Securities (600030.SS) is underwriting both the Shanghai and Hong Kong portions of the offering, while Citigroup (C.N) and Macquarie Bank (MQG.AX) are handling the Hong Kong IPO. (US$1=HK$7.8=7.1075 yuan) (Editing by Ken Wills and Tony Munroe)