A solid balance sheet is expected to facilitate the expansion of operations Listing candidate Luen Thai Holdings plans to use a large part of the proceeds from its initial public offering, planned for this summer, to pay down almost US$100 million in debts. The company will need to supplement the proceeds with new long-term bank loans this year to tidy up its balance sheet, according to a pre-listing report issued by IPO sponsor BNP Paribas Peregrine. According to a market source, the company plans to raise between HK$523 million and $680 million, offering 225 million shares at an indicative price range of $2.325 to $3.025. The pricing represents a price-earnings ratio of 8.7 to 11, based on BNP's earnings estimates for this year of 27.1 HK cents per share. The projected float is equal to about 25 per cent of the firm. The source said about US$38 million from the proceeds would go into new mainland factories while about $18 million would be used to repay short-term loans. Luen Thai had outstanding debts of US$99.9 million in December last year, including short-term loans from 'related companies' and banks, according to the BNP report. The company would also need to draw new long-term bank loans worth US$61.3 million and use about $20.6 million from internal resources to pay down the debts this year, the report estimated. After the listing and debt restructuring, Luen Thai's net gearing, including related-party loans, will fall to 4.5 per cent this year from 130.6 per cent last year. 'This will provide the group with a solid balance sheet on which to execute its expansion plan,' BNP wrote. Fund managers said that based on the information available, the company seemed more concerned with repaying debts, particularly those due to related firms, than with expanding. 'It's a good thing to make it more financially sound. But to investors, it would be optimal if all the money would be used for company expansion,' a fund manager said. Luen Thai posted a net profit of US$23.6 million last year on sales of $544.9 million.