'Zhanjiang Port is the most sizable port in southwest China and an ideal place for developing iron ore and oil terminals,' chairman Fu Yuning said.

Mr Fu said Zhanjiang Port would make use of the capital markets to finance its four billion yuan expansion plan.

Sources said Zhanjiang would be listed in the A-share market. Under mainland listing regulations, an initial public offering candidate must have at least five shareholders.

The application for converting Zhanjiang Port into a joint stake limited company has received government approval.

China Merchants signed an agreement at the weekend to pay 1.6 billion yuan for a 45 per cent stake in a Zhanjiang Port joint venture.

This is just the latest acquisition for China Merchants in ports that plan to go public. In 2005, it bought a 30 per cent stake in Shanghai International Port Group before it went public on the Shanghai Stock Exchange.

On Tuesday, China Merchants Group, parent of China Merchants, signed a letter of intent with Ningbo Port Group, which is considering a public offering, to further their co-operation on port projects.

However, Mr Fu declined to comment yesterday on whether China Merchants would invest in the possible offering.

China Merchants' net income rose to HK$1.52 billion, or 65.07 HK cents a share. Earnings from its port business before interest and taxes gained 34 per cent to HK$1.74 billion, thanks to a 20 per cent increase in cargo volume or throughput at ports, mainly in Hong Kong, Shenzhen West and Shanghai.

The company owns and operates some of these ports and, in others, is a passive investor. Sales increased 46 per cent to HK$12.11 billion.

The board recommended an interim dividend of 20 HK cents, compared with 17 HK cents a year earlier.

The company's port and container production divisions accounted for 96.7 per cent of total sales in the first half. The port operator said it would continue to sell non-core business, such as its stake in the Western Harbour Tunnel. It has been approached by buyers, but no deal has been finalised.

Throughput in container terminals in which the company is an investor increased 19.8 per cent to 22.16 million 20-ft equivalent units.

Volume at bulk cargo terminals in western Shenzhen, Shanghai and Zhangzhou increased 7.2 per cent to 77.52 million tonnes. Sales from these sectors were minimal for now, but Mr Fu said their portion of total sales would increase to 10 per cent in three to five years.

'We will focus on large-scale bulk cargo terminals because China needs to import 300 million tonnes of iron ore from Brazil, Australia and India each year,' he said.

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China Merchants has been buying into ports that are taken public

The mainland port operator and investor's gain in interim turnover 46%