GUANGDONG Investment (GDI), the locally listed arm of the province's municipal government and a leading contender for inclusion in the Hang Seng Index, is poised to announce a $2 billion share issue to finance aggressive expansion. The huge cash raising venture will increase GDI's market capitalisation to over $10 billion, making it the 38th largest company in Hong Kong and an even stronger contender for constituent stock status. Peregrine Capital is understood to be putting the deal together. Spokesmen for Peregrine and Guangdong Investment declined to comment. A banking source said about 400 million new shares would be issued at a five per cent discount to the $5.25 share price, pricing them at $4.98. Earnings per share should be left relatively unscathed. ''GDI has a policy that any cash raising must not dilute earnings per share or it won't do it,'' said Chong Leong, an analyst at W. I. Carr. ''The stock is currently trading on a price-earnings multiple of about 20 times and it usually acquires profit-making assets from its parent for under 10 times. This ensures that shareholders do not lose out.'' About $1 billion of the cash raised will be used to pay for assets GDI has already agreed to purchase from its parent, Guangdong Enterprises. The remainder of the money will be used as working capital to finance further expansion of its asset base. GDI has run up a significant bill in the last few months with a raft of purchases to expand its diversified interests in hotels, tourism, infrastructure, property, manufacturing and retailing. According to Mr Leong, the fledgling conglomerate's tab includes $500 million for the Tianhe Town development, $400 million for the Riverside shopping mall, and $164 million for the Shauguan Power Plant. Charles de Trenck, an analyst at Kerry Securities, said GDI was also planning to expand its existing assets. He estimated the company would spend 120 million yuan (HK$107.76 million) on the Guangzhou Malting Factory and 70 million yuan on Shenzhen Brewery. Further commitments included the purchase of a 51 per cent stake in Guangdong Construction Material International, which owns Yingde Cement. Mr de Trenck estimated this would cost up to 290 million yuan. The company also bought the Wharney Hotel in Wan Chai, the Guangdong Hotel in Tsim Sha Tsui and the Guangdong Investment Hotel Management group from its parent company. The quality counter has a number of other acquisitions up its sleeve including a $150 million deal for 50 per cent of Guang Nan Hong, a Hong Kong-based fresh produce trading company, and a 200 million yuan deal for a five-star hotel in Beijing. Further asset acquisitions from its parent company are also a certainty. ''Basically, it really needs the money,'' said the banking source. The new issue will be GDI's largest fund-raising effort since its successful $1.6 billion placement in 1992, which accounted for about a third of the $4.2 billion the company raised over the last three years. Analysts welcomed the news and said the issue should be well received. Mr de Trenck said: ''Management has stated it needs the money and this is a good way to raise it.'' Mr Leong said: ''GDI has stated it wants to be a $10 billion company by the end of the year. A $2 billion share placement is perfectly reasonable. The whole thing sounds pretty safe and I'd say buy it.''