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SCMP Reporter

State-owned manufacturer bucks trend of mainland IPO priority with HK listing plan
China Southern Locomotive & Rolling Stock Industry (Group), a major state-owned locomotive maker, will seek  a Hong Kong listing to raise about US$2 billion next year in what is seen as a rare deal  with most state companies encouraged to list at home first.
'I think it is a special case as most mainland large IPOs consist of offshore and domestic share offerings,' a banker said.
Recent offerings of more than  US$2 billion were sold  in Hong Kong and Shanghai, including China Railway Group, which completed its US$5.5 billion dual offerings this month.
Pacific Insurance Group, the third-biggest mainland insurer, will complete a  US$4.1 billion A-share offering  over the next two weeks, followed by a  listing in Hong Kong in the first quarter of next year.
Beijing issued informal guidelines on initial public offerings  late last year to encourage more domestic listings, and some market watchers said  deals below US$1 billion would not be approved for an H-share offering in Hong Kong.
The move was aimed at helping absorb  excess capital in the A-share market and making more quality firms available for domestic investors to stop  the market from overheating.
However, sources said that many large  state-owned firms preferred  offshore listings because that could attract more international investors. Also, an H-share listing first would help boost the company's value when it listed A shares later, they said.
'There are always pros and cons over a dual listing. An H-share offering could broaden the investor base and help the firm gain international attention while an A-share offering could fetch a higher valuation,' an analyst said.
Owing to the  size of its offer, Southern Locomotive would invite more banks to join the deal's syndication after the  Lunar New Year, when it would also decide on the tentative listing timetable, the sources said.
'The H-share offering would likely be worth around US$2 billion to US$2.5 billion depending on the market sentiment at the time of listing,' the banker said, adding that  a timetable for the possible A-share offering was still unclear.
Despite the softening Hong Kong market, observers said demand for Southern Locomotive should be strong given the  outstanding performance of China Railway Group, a railway builder that also engages in other infrastructure construction businesses.
Shares of China Railway have surged 65.6 per cent to HK$9.57  since their trading debut on December 7 from the offer price of HK$5.78 each.
'The unique position in the sector has helped China Railway to outperform the market,' said Ben Kwong Man-bun,  the chief operating officer of KGI Securities.
Strong economic expansion, growing trade and rapid urbanisation on the mainland has seen significant demand on the country's transport infrastructure.
Under the 11th Five-Year Programme between 2006 and 2010, the Ministry of Railways has earmarked railway-related spending of 1.5 trillion yuan, which will put  19,000 locomotives, 45,000 passenger cars and 700,000 freight cars into service.
The aggressive expansion plan will help the operational length of railways on the mainland to reach more than 90,000km in 2010.
Australia's Macquarie Securities and China International Capital Corp  had been mandated to lead the share sale while Ernst & Young would be its auditors, an informed source said.



Southern Locomotive eyes US$2b