China Special Steel Holdings has begun marketing an initial public offering to raise up to $333 million, brushing aside delays in the share sales by two mainland industry peers in Hong Kong recently amid domestic austerity measures and rising costs. The Henan-based company, billing itself as the country's largest non-state-owned special steel manufacturer, is pitching to investors the high growth potential of the less crowded mainland special steel sector and its ability to deflect the impact of rising international raw material costs with cheap domestic supply. Formed 12 years ago, China Special Steel recorded 76 per cent compound annual growth in revenue over the past three years to 783 million yuan last year, mainly from the sale of bearings and spring steel. It ranked third by turnover among about 20 domestic competitors in the 12 months to December last year. The company expects expansion of the country's machinery and vehicle industries to fuel strong growth in the special steel sector despite disappointing domestic car sales figures recently. Raw materials and electricity account for more than 70 per cent of the company's costs. Although international iron ore prices have increased 71.5 per cent this year, China Special Steel would be cushioned from the impact by sourcing about 25 per cent of its iron ore demand from two domestic suppliers through long-term contracts priced at 30 per cent to 60 per cent below international rates, chairman Dong Shutong said yesterday. About $47 million of the listing proceeds will fund development and production of pearlite as a cheaper substitute for scrap steel. Already benefiting from Henan's lower electricity tariffs than coastal provinces, the company is aiming to cut electricity expenses 5.6 per cent this year over last year through stringent cost control. 'We expect our costs to remain stable,' Mr Dong said. 'We are confident about ... maintaining our gross margin this year.' The firm's gross profit margin narrowed 10 percentage points last year to 20 per cent. Chief financial officer Florence Lee attributed the fall to a decision not to pass on all raw material cost increases to clients to cultivate long-term relationships. China Special Steel will sell 180 million new shares, or 36 per cent of its enlarged share capital, to investors at $1.48 to $1.85 each, representing 6.2 to 7.7 times last year's pro forma earnings. The sale will dilute Mr Dong's holding to 64 per cent before the over-allotment option. Book building for the 162 million shares reserved for international institutional investors began on Thursday last week. Another 18 million shares will be on offer to retail investors in Hong Kong from today until Thursday. Under the over-allotment option, Mr Dong's holding will be reduced by 27 million shares to boost the public offering. The stock's debut is scheduled for May 19.