IPO candidate has had profits ravaged by the rising price of its raw materials Jiangsu-based China Glass Holdings, which kicks off a $207 million initial public offering today, has seen volatile raw material costs eat into profitability in the first five months of this year, chairman John Zhao Huan says. Prices for soda ash, a primary raw material used in the production of the group's mainstay product, flat glass, have soared as much as 15 per cent since January as a result of tighter supply and a reliance on imports. The high cost of raw materials, which accounted for 38 per cent of the company's total operating costs, compounded by the central government's ongoing macro-economic adjustment measures, will challenge the group's prospective profits. The group's gross profit margin was 29.4 per cent last year while net profit climbed 15.1 per cent. 'We believe the volatility of soda ash prices is temporary. Prices began coming down in April,' said Mr Zhao, who is also the vice-president of Legend Holdings. He declined to reveal the group's trading performance for the first five months. Legend, the world's biggest computer maker, will remain a substantial shareholder in China Glass, with a 25 per cent stake following its debut on the main board on June 23. Established in 1968, China Glass is one of the mainland's most economically efficient flat glass producers, selling 5.94 million weight cases last year, mainly in Jiangsu province, Guangdong province and Shanghai. Analysts were concerned that growth in the demand for flat glass would taper off due to China's macro-economic policies. 'The measures are aimed at cooling speculation on residential properties and maintaining prices at affordable levels. Therefore I believe that demand for properties will continue to grow and so will [demand for] flat glass,' Mr Zhao said. Despite the uncertainty, China Glass invited British-based Pilkington, a leading producer of windshield glass, to come on board as a strategic shareholder, selling it a 9.9 per cent stake. Mr Zhao said the investment underlined Pilkington's desire to expand its market share in flat glass after its lengthy involvement in China's windshield glass segment. China Glass is offering 90 million new shares, of which 81 million will be allotted to institutional and professional investors and the rest to the public. The price of shares in the IPO, from an indicative range of $1.50 to $2.30 per share, will be fixed on June 22. At the top end, this is equivalent to a historical price earnings ratio of about 10 times on last year's net profit of 64.81 million yuan. The PE Jiangsu-based Zhejiang Glass is about six times. Net proceeds, of up to $207 million, will be spent largely on raising production capacity by two thirds to 1,500 tonnes.