China Hongqiao Plans to Raise $2.2 Billion in IPO

HONG KONG—China Hongqiao Group Ltd., a Chinese aluminum producer, plans to raise as much as US$2.2 billion from an initial public offering ahead of its Hong Kong listing on Feb. 11, according to a person familiar with the situation.

Hongqiao, which is located in Shandong province and mainly produces molten aluminum alloy, plans to sell 1.74 billion shares at an indicative price range of 7.10 to 9.90 Hong Kong dollars each?US$0.91 to US$1.27?, the person said Saturday. There is a greenshoe option to increase the offering size 15% in the event of strong demand, which would boost the deal up to US$2.5 billion. Institutional bookbuilding will begin Monday.

Hongqiao officials couldn't be reached for comment.

The company will use the proceeds to expand production capacity, the person said.

J.P. Morgan Chase & Co., ICBC International Holdings Ltd., Bocom International and BNP Paribas SA are joint bookrunners for the IPO, another person familiar with the situation had said.

The deal would be one of the largest IPOs in Hong Kong this quarter after the city topped global markets with a total of US$57.7 billion raised from 87 listings last year.

Hongqiao joins a spate of companies seeking to tap the market in the next few months. Other Chinese companies lining up to list include hypermarket operator Sun Holdings Greater China Ltd., which plans to raise at least US$1 billion; shipbuilder New Century Shipbuilding Ltd., which aims to raise as much as US$800 million; curtain-wall maker Shenyang Yuanda Aluminium Industry Engineering Co. and marble miner Kingstone Marble, which each seek as much as US$500 million, people familiar with the situations have said.

Hongqiao's IPO range translates to a multiple of 7.5 to 10.47 times the expected 2011 earnings, based on bankers' forecasts, the person said. By comparison, Hong Kong-listed United Co. Rusal PLC of Russia, the world's biggest aluminum producer by output, recently traded at multiple of 6.5 and Aluminum Corp. of China Ltd., also known as Chalco, traded at 11.9, according to a Deutsche Bank research report on Dec. 22.

Hongqiao's revenue increased 71% in the first nine months of last year to 10.5 billion yuan?US$1.59 billion? from a year earlier, while its volume of aluminum-products sales rose 38% to 747,027 tons, amid a recovery in global demand for aluminum and the rise of aluminum prices from a market low in 2009, according to a research report from one of the bookrunners.

The average selling price of Hongqiao's aluminium products increased by 17% to 13,430 yuan a ton for the first nine months last year, the report said.

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