China Railway Construction Corp priced the Hong Kong portion of its stock offering at the top of a range, raising $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 (IPO) to raise up to $2.1 billion in a market that has cooled mainland real estate firms, as the central government applies tightening measures to the sector.

A stack of IPO prospectuses for China Railway Construction Corp. The construction giant priced the Hong Kong portion of its IPO at the top of a pre-set range, thereby raising $5.4 billion. AP

China Railway Construction, 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 skeptical 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 offered to institutional investors, and the IPO was 291 times covered in its retail portion, for orders totaling $236.6 billion.

It ranks as the most popular IPO ever for Hong Kong individuals, ahead of E-commerce firm Alibaba.com and ICBC, 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 mainland 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 trades at 15 times 2008 earnings.

The mainland 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, an analyst at Ginger Capital Management Ltd in Hong Kong.

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

Goldman Sachs, 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 its project completion target from 0.5 million sq m 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.

Reuters

(HK Edition 03/07/2008 page3)