Huadian Power International, the first mainland company to launch a domestic initial public offering under the new western-style price-seeking scheme, has set an indicative price range at a thin premium to its Hong Kong share price. The move sets the tone for further corrections of the mainland's falling share indices, at the same time reducing the valuation hurdles for joint domestic and Hong Kong share offerings. 'We had expected the narrowing of the valuation gap between [domestic yuan-denominated] A shares and [Hong Kong-listed] H shares as a result,' Xiangcai Securities trader Tang Yong said yesterday. 'But we didn't expect it to be achieved in one step and didn't want to see it done that way.' Under the old mainland scheme, which empowered the regulator to approve listing prices, most - and particularly smaller - share offerings were effectively priced close to 20 times earnings. This contributed to the arbitrarily high overall valuation of the domestic stock market, which led to the reluctance of A-share listed companies such as China Minsheng Banking Corp to sell H shares at a cheaper price and put up hurdles for the likes of Shenhua Group when launching simultaneous A and H-share offerings. The new mechanism, introduced by the China Securities Regulatory Commission last month, requires issuers to seek price quotes from institutional investors, on which an indicative price range and final offer price will be decided. Huadian was picked as a guinea pig for the new mechanism because of the size of its offering, the availability of its H-share price as a benchmark and the rich experience of its A-share listing sponsor, China International Capital Corp (CICC), a Morgan Stanley joint venture, in pricing deals under the western book-building system. After three days of pre-marketing to 77 institutional investors, Huadian and CICC set the preliminary price range of the 765-million-share offering at 2.30 yuan to 2.52 yuan. Nearly two-thirds of the institutions have expressed interest in the shares. The range represents price-earnings ratios of 13.5 to 14.8 times, based on Huadian's enlarged share capital. At the high end of the range, Huadian's A shares would be priced at a premium of about 3.5 per cent to its Hong Kong-quoted H shares, which closed at $2.30 on Wednesday, the day the A-share price range was set. Huadian was said to have wanted to price its A-share offering higher but the CSRC, keen to ensure the new scheme's success, intervened at the last minute, as widely expected, market sources said. A CICC spokeswoman denied there had been any intervention, saying: 'We've adhered strictly to the price-seeking system and relied completely on negotiations with the issuer to set the price range.' The unveiling of the price range triggered a sweeping decline in the already-depressed mainland indices yesterday. The benchmark Shanghai A-Share Index lost a further 1.13 per cent during the day to close at a 51/2-year low of 1,264.051, extending this year's cumulative fall to 5.59 per cent.