THE initial public offering (IPO) of Shandong International Power Development is facing a crucial test as concerns mount that the issue could collapse, possibly tarnishing Hong Kong image as capital-raising centre for China entities. Investors have continued to spurn the issue despite price cuts and an extended offer period. The Shandong IPO, due to close tomorrow after the offer was extended on the weekend at the last minute, follows two listing cancellations by mainland-backed firms last month. Fund managers said it would shake investor confidence in the market and damage Hong Kong's reputation. Interest in the issue has been weak, with the bankruptcy of Guangdong International Trust and Investment Corp (Gitic) scaring many investors away from mainland issues after foreign creditors, who were understood to have been given repayment guarantees by the Itics' local governments, failed to recover their money. 'The fundamentals of the company are okay. What is not okay is the macro environment,' Andrew Look of Prudential Portfolio Managers said. The IPOs of Heilongjiang Agriculture and Zhujiang Steel Pipe were postponed earlier this year due to poor market conditions. One economist said mainland companies could choose to list in Shanghai or Shenzhen instead, or could decide to list as A shares, rather than as H shares. The matter should be kept in perspective, he said. Ultimately, it did not matter whether a company listed in London, New York or Amsterdam, as it would simply depend on where the market conditions were best. 'That's just the market economy at work,' he said. Investment adviser Marc Faber said the IPO's poor response and earlier cancellations would not necessarily damage the SAR's position as a capital-raising centre and predicted the market might be near its bottom. 'It's a typical sign that the market is near a low,' he said. While equity issues suffer, many companies are looking to tap loan markets for finance. A three-year fixed-rate note issue by Cheung Kong launched last December has been popular with investors; it has doubled in size from $500 million to $1 billion. Launched on January 13, the initial size of the issue was set at $500 million but was increased to $750 million on January 20 and raised again on February 4 to $1 billion. Jackson Cheung, chief executive at Soc-Gen Asia - one of the lead managers of the issue, said the issue would not be increased again before the February 12 payment date. He said investors were willing to invest in Hong Kong but were looking to bonds rather than equities. 'There is a little bit of liquidity in the market for very good corporate names, with yields at that level,' he said. Cheung Kong's notes pay a quarterly coupon of 8.15 per cent, amounting to an 8.4 per cent annual yield. The issue has benefited from a dearth of note issues in recent months. Investors have also moved away from equity issues and are putting more money into fixed instruments. Sun Hung Kai Properties has taken a similar route. It announced a euro medium-term note programme on Friday to raise US$500 million. Morgan Stanley, the arranger of the programme, said it had in part been prompted by the success of the Mass Transit Railway Corp's January note issue. Blue chips have also benefited from the credit squeeze on China entities, by mopping up the available liquidity. Swire Pacific announced last month it was to seek $2 billion through a syndicated loan offered to a select group of banks initially. Barclays Capital credit researcher Damien Wood said: '[The banks] have got certain budgets to meet. They've got to use the money for something. Hong Kong is a better bet [than the mainland].'