Metallurgical Corp of China Ltd plans to sell as much as HK$19.6 billion ($2.5 billion) of stock in Hong Kong's biggest initial public offering in 18 months, said two people familiar with the matter.
The sale of as many as 2.87 billion shares at HK$6.16 to HK$6.81 apiece will raise as much as HK$17.8 billion for the company and HK$1.78 billion for the National Social Security Fund, the people said, declining to be named before an announcement. The State-owned construction and engineering company is also selling stock in Shanghai.
Metallurgical's IPO will be the largest in Hong Kong since China Railway Construction Corp's HK$20.2 billion offering in March 2008, as an economic recovery buoys demand for Chinese stocks. The Hang Seng China Enterprises Index tracking mainland incorporated companies traded in Hong Kong gained 49 percent this year, rebounding from its steepest decline in 2008.
"The pricing is not cheap, if you compare it with other IPOs by commodity companies this year, such as China Zhongwang Holding Ltd," said Helen Wang, analyst with DBS Vickers Hong Kong Ltd.
The price range represents 16.4 times to 18.1 times Metallurgical's 2010 profit as estimated by banks arranging the sale, according to a document sent to fund managers that was obtained by Bloomberg News. China International Capital Corp, CITIC Securities Co, Citigroup Inc and Morgan Stanley are managing the offering.
The company will use 45 percent of the proceeds to develop overseas metallurgical and mine construction projects, the document said. Calls to Metallurgical's press office went unanswered.
Manufacturing in China increased at the fastest pace in 16 months in August, buoying demand for metals in the country.
Metallurgical may expand the Hong Kong sale by 15 percent to meet excess demand. The builder started taking bids from institutional investors yesterday and the shares will be priced on Sept 18. They will start trading Sept 24.
The company plans to sell 3.5 billion shares in Shanghai before the Hong Kong sale. They will be offered to investors Sept 9 and priced Sept 10, according to a statement filed to the Shanghai Stock Exchange. The company didn't say when its Shanghai shares will start trading.
CITIC Securities Co is the lead underwriter of the Shanghai share offering.
Proceeds from the Shanghai share sale will be used to fund construction of steel plants in China, property developments, the $1.4 billion Ramu nickel project in Papua New Guinea and to repay bank loans, according to the prospectus.
Metallurgical will offer about 40 percent of its Shanghai shares to institutional investors through the offline tranche, while the remaining 2.1 billion shares will be allocated to both institutions and retail investors through an online offer.
China Zhongwang Holdings, the nation's largest maker of extruded aluminum products, in April raised HK$9.8 billion after pricing shares toward the low end of a HK$6.80-to-HK$8.80 range.