China railway builder prices Shanghai IPO at top

HONG KONG (Reuters) - China Railway Construction Corp, which is raising up to $5.4 billion in a dual Hong Kong and Shanghai IPO, priced the mainland China part of the deal at the top of its range on strong demand for shares despite the market sell-off, sources involved in the deal said on Wednesday.

China Railway Construction and its duopoly rival, China Railway Group (0390.HK)(601390.SS), are beneficiaries of Beijing's heavy investment in China's creaking infrastructure.

Recent snowstorms in large parts of the country exposed the fragility of transport links struggling to cope with breakneck economic growth.

Strong demand for shares despite this year's market sell-off showed that investors view the infrastructure sector as a relatively safe haven and see value in new listings. China Railway Construction was priced at a sharp discount to its rival.

"China Railway Construction is a proxy for China's infrastructure industry, which is less affected by China's recent tightening policies. Investors like this sector," said Adam Tam, fund manager at Pacific Sun Investment Management in Hong Kong.

China Railway Construction priced the mainland A share portion of its initial public offering at 9.08 yuan each, at the top of an 8.00 yuan to 9.08 yuan range, said the sources, who did not want to be identified because they were not authorized to speak with the media.

The offer values the firm at 26.6 times forecast 2008 earnings -- a 32 percent discount to more profitable China Railway Group's price-to-earnings ratio of 39 times.

The order book for A shares was about 160 times subscribed in the online application portion, while institutional investors subscribed for 60 times the shares available to them, one of the sources said.

One hedge fund manager who declined to be identified noted the sector is protected by high barriers to entry by competitors.

"China Railway Construction and China Railway Group dominate the industry. That's why either are a must-buy for investors to tap the Chinese railway sector," the hedge fund manager said.

China Railway Group's Hong Kong shares have jumped 62 percent since its dual IPO late last year raised $5.5 billion, while its Shanghai shares have more than doubled.

HEAVY SEPNDING

China has earmarked $175 billion to invest in railway infrastructure in its five-year plan through 2010, nearly quadruple the level under the previous five-year plan.

China Railway Construction, which is about the same size as China Railway Group, will begin trading in Shanghai on March 10 and in Hong Kong on March 13. Its share sale was delayed from January due to the global market sell-off.

The company sold 2.45 billion mainland shares -- less than it had originally targeted -- raising 22.25 billion yuan ($3.11 billion). It is also selling 1.7 billion shares, or about 14 percent of its enlarged share capital, in Hong Kong at a range of HK$9.93-HK$10.70 each.

The order book will be opened to Hong Kong retail investors on Friday, with pricing likely to be set on March 6.

While the IPO is on track to be the world's largest this year, it would be surpassed by the potentially $18.8 billion share sale planned by U.S.-based Visa Inc, the world's largest credit card network.

The Shanghai Composite Index .SSEC lost nearly 20 percent this year through Tuesday, although it was up 2.3 percent on Wednesday. Hong Kong's Hang Seng Index .HSI lost nearly 15 percent this year through Tuesday, but jumped 3.3 percent on Wednesday.

China's 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 sponsoring the Hong Kong offering.

(US$=7.146 yuan=HK$7.8)

(Editing by Anne Marie Roantree and Louise Heavens)