LISTING candidate Guangdong Fotao Group Corp is offering a bonus dividend as a sweetener which will effectively lower its price earnings (P/E) multiple. The Chinese ceramics maker planned to declare a dividend yield of 3.5 per cent, or about five cents in cash, to holders of H shares as well as its mainland shareholders, an informed source said. If a company lists near the end of the fiscal year, it usually does not pay a dividend. Fotao, which is conducting an international roadshow, has a price range of $1.40 to $1.67, representing 8.38 to 9.78 times on a pro forma fully-diluted basis. This was calculated on the profit projection of 178 million yuan (about HK$165.54) this year, up 77 per cent from last year's 100.14 million yuan. On a weighted average basis, its P/E is 6.96 and 8.31 times. With the proposed bonus, the lowest end of the weighted average P/E will reduce to 6.72 times and pro forma fully-diluted P/E to 8.13 times. 'Because of the principle of having the same benefits for different classes of shares, it will give the same dividend to H shareholders, as well as its employee shares, legal-person shares and state shares,' the source said. Shareholders would receive the dividend after the annual general meeting after June, he said. The cash dividend would effectively lower the subscription cost of the issue, but some analysts said the four per cent reduction in issue price might not be a strong enough incentive. Amid the negative sentiment towards H shares, analysts expect Fotao to pull off the offering at the lower end to middle of the price range. Typically, they cited concern about Fotao's high gearing, and China's austerity programme. Fotao is issuing 305 million shares to raise up to $509 million. With debts of 1.4 billion yuan, one-third of the proceeds will be used to repay the loan. Its debt-to-asset ratio is expected to drop to 80 per cent next year, from 110 per cent. Gary Chan, director of China Development Finance, Fotao's sponsor, said it should not be compared with Siu Fung Holdings and Interform Ceramics Technologies, which were engaged mainly in ceramics machinery manufacturing. Siu Fung announced last month that loss-making mainland joint ventures had depressed its earnings. 'As China's largest ceramics manufacturer, Fotao has maintained its profits even in the difficult periods in 1994 and 1995,' he said. Because the company manufactured sanitary ware ceramics, Mr Chan said it would benefit from China's comfortable housing projects. Fotao's roadshow will end on Wednesday, when the issue price will be fixed. Mr Chan said the roadshow met an enthusiastic response in Europe.