China South Locomotive IPO attracts huge demand

SHANGHAI, Aug 6 (Reuters) - China South Locomotive & Rolling Stock Corp, the country's biggest train maker, said on Wednesday it attracted massive demand for its initial public offer of shares in Shanghai, which raised 6.54 billion yuan ($956 million).

The company drew 2.27 trillion yuan of retail and institutional subscriptions to its offer of 3 billion yuan-denominated A shares, or 30 percent of its expanded share capital. The offer was priced at 2.18 yuan per share, at the top of its indicative range.

The offer was China's first major IPO since gold producer Zijin Mining Group (601899.SS) raised 10 billion yuan in April.

South Locomotive's oversubscription ratio was one of the highest for a big IPO in the past two years, despite a severe slump in the stock market. The Shanghai Composite Index .SSEC is down more than 50 percent from last October's record peak.

But analysts said the strong demand for South Locomotive was largely due to the cheap pricing of its offer. The shares were priced at just over 16 times estimated 2008 earnings per share, diluted for the offer and based on Chinese accounting standards.

The Shanghai IPO of China Railway Construction Corp (601186.SS) in February was priced at 28 times earnings, and China Railway Group's (601390.SS) IPO last November was priced at 21 times.

"South Locomotive's IPO price range was set very low because of the weak stock market, offering an opportunity for no-risk investment," said Mo Yanjun, senior machinery industry analyst at Guotai Junan Securities in Beijing.

"The consensus among industry analysts is that the company's A shares will trade at a price/earnings ratio of 28 to 30 times on its listing, with the risk to the upside," he said.

That would mean a jump of 75 percent to 87 percent in South Locomotive's shares from their IPO price on their first day of trade.

Three-quarters of the offer was originally earmarked for retail investors and the rest for institutions, but the ratios were adjusted to 80 percent and 20 percent because of strong retail demand.

South Locomotive also plans to raise $566 million in Hong Kong by selling 1.6 billion H shares in a range of HK$2.49 to HK$2.76 each, sources close to the deal said on Monday. ($1 = 6.84 yuan) (Reporting by Andrew Torchia; Editing by Braden Reddall)