CT Environmental, a Guangdong-based water-treatment company, started institutional book building yesterday for a long-planned Hong Kong initial public offering. It hopes to raise HK$673.2 million on the back of increased government spending on environmental protection. The firm, partly owned by Li Szelim, the chairman of Guangzhou R&F Properties, is looking to expand into the sludge-treatment business, where it would benefit from both government subsidies offered to water-treatment plants and sales of fertiliser byproduct. "The sludge-treatment business, which represents a minimal contribution to our earnings this year, is expected to account for 20 per cent of overall revenue next year," chief financial officer Ray Sit Hon-wing told reporters yesterday. Sit also said mainland environmental policy had encouraged the company to start providing sludge treatment to other water-treatment firms. CT Environmental's prospectus says it has "no operational experience" in providing sludge treatment or operating and maintenance services to third parties. Its chairman, Tsui Cham-to, said water-treatment firms received a government subsidy of 200 yuan (HK$253) a tonne for taking care of tainted sludge. It is understood that the firm's sludge-treatment licence only allows it to conduct business in Guangdong province and that it intends to begin operating and maintenance services for other wastewater-treatment firms later this year. Sit said planned capital expenditure for next year could be similar to this year's HK$387 million. CT Environmental will offer the new shares for between HK$1.48 and HK$1.98 each, representing an expected price-earnings ratio of up to 8.6 times, based on anticipated earnings next year. It will start taking orders from retail investors today and pricing is scheduled for next Tuesday. The shares will start trading on September 25. The State Council said last month it wanted the environmental protection industry to grow by 15 per cent a year and generate turnover of 4.5 trillion yuan by 2015.