China Zhongwang Holdings, the mainland's largest producer of processed aluminium products, launched its initial public offering yesterday, a deal market observers said would be a crucial test of investor appetites after an eight-month drought of big listings. Market watchers said Zhongwang could draw adequate orders for its US$1.58 billion offering, thanks to its unique position in the mainland's transport sector as well as the recent market rally in the region. Zhongwang's offering is set to be the largest in the world so far this year, after health-care company Mead Johnson's US$828 million deal completed in February, according to figures from Thomson Reuters. The offering was also expected to be the biggest in four years after German television company Premiere raised US$1.57 billion in March 2005. There have been no sizeable offerings in Hong Kong since China South Locomotive & Rolling Stock Corp's US$535 million deal in August last year. However, seven smaller listings in the first four months this year raised a combined US$335 million. 'The response to Zhongwang's deal will be a reflection of whether the market has turned positive. If it can draw a strong reaction, it may boost confidence,' a fund manager said. Kenny Tang Sing-hing, an executive director at Redford Asset Management, said investors were still wary of putting money into new names but a good response could change that. Zhongwang is offering 1.4 billion new shares at between HK$6.80 and HK$8.80 each to raise up to HK$12.3 billion on the main board, according to the sales memo received by fund managers. The offering price represented a multiple of 10 to 13 times forecast earnings this year, sources said. The company could collect an additional HK$1.85 billion if the over-allotment option to issue 210 million more shares is exercised. The offering became available to institutional investors yesterday while local investors can start placing orders from Friday until April 29. Trading is expected on May 8. Citic Securities, JP Morgan and UBS are the joint global co-ordinators of the offering. Analysts said Zhongwang would benefit from China's transport spending under the 11th Five-Year Plan started in 2006. Under the plan, the country would invest 3.8 trillion yuan (HK$4.31 trillion) in transport projects and another 1.25 trillion yuan in railway infrastructure, including 10,200km of rail lines. According to a report issued by the deal's arranger, Zhongwang's gross profit from the transport segment was expected to rise to 76 per cent of the total earnings in 2011 from 69 per cent forecast income for this year. Net profit was expected to increase 65 per cent to 3.1 billion yuan from 1.9 billion yuan, the report said. Zhongwang has been shifting its focus to transport from the sales of construction products over the past few years. Construction product sales, which accounted for 73 per cent of sales in 2006, is expected to drop to 19 per cent this year while transport-related sales will rise to 61 per cent from 15 per cent three years ago. Zhongwang plans to spend 2 billion yuan to increase production capacity by 50 per cent to 800,000 tonnes in two years. The company has 64 production lines and capacity reached 535,000 tonnes last year, making it the world's third-largest extruded aluminium products maker. Despite the Zhongwang offering, investment bankers said it would take a while before demand for new offerings fully recovered, given weak corporate earnings and lack of new capital inflows. The volume of global offerings is down 95.7 per cent with 59 issues for US$1.9 billion so far this year, well below US$45.6 billion from 214 issues in the same period last year, according to Thomson Reuters. 'There's no hot money coming back in to this market. Companies are fearful about missing the next leg up, as investor interest remains muted and selective,' said one equity capital markets banker. 'If [Zhongwang's share] trades well in the after market, others will try to come in.'