Sovereign fund invests US$100m in share sale

China Investment Corp, the fund tasked with investing the mainland's foreign reserves, plans to buy US$100 million worth of shares in China Railway Group's Hong Kong initial public offering, according to sources.

China Railway Group, the mainland's largest construction company, plans to offer 3.326 billion shares in its Hong Kong listing at between HK$5.03 and HK$5.78 a share.

The company, which built the world's highest railroad that ends in Tibet, will also offer 4.675 billion shares at a range of four to 4.80 yuan each for a Shanghai listing.

China Railway will raise US$5.47 billion from the sale of eight billion shares from the two listings, assuming the deals are priced at the top-end of their ranges.

Apart from China Investment Corp, China Railway will also set aside about US$400 million worth of Hong Kong-listed shares for eight to 10 cornerstone investors, including mainland insurance giant China Life Group, GIC, an investment fund owned by the Singapore government, and Henderson Land's Lee Shau-kee. Each cornerstone investor would buy about US$38 million worth of shares, the sources said.

The price ranges were arranged so that the final price of the Hong Kong offering would be set at or above the share sale price of the A-share offering.

The shares will start trading in Shanghai on December 3 and in Hong Kong four days later.

JP Morgan, ABN Amro and UBS are responsible for the H-share offering while BOC International and UBS will handle the A-share sale.

China Railway will be China Investment Corp's second purchase in an initial share sale. The state investment unit's US$3 billion spending in Blackstone Group's initial offering earlier this year has drawn criticism since shares in the private equity firm have sunk below the offer price.

In addition to constructing track and related infrastructure for the mainland railroad system, China Railway builds highways, irrigation works, ports, hydroelectric dams as well as seaports and airports.

Its net income was 2.046 billion yuan last year on revenue of 153.6 billion yuan, according to a filing with the Hong Kong stock exchange.

For the first half of this year, net income was 643 million yuan on 72.5 billion yuan in revenue.

Raw materials prices, particularly steel and cement, were rising and accounted for a growing portion of total costs, the company said. It spent 42.94 billion yuan to buy materials, 60 per cent of the total cost of sales last year, from 55 per cent.

Total freight traffic on the country's highway and rail system had a 7.6 per cent compound annual growth rate in the past five years to 20.3 billion tonnes in December last year, the China Statistical Yearbook says.

Rail and highway passenger traffic achieved a 5.5 compound annual growth rate in the past five years.

On track

Proceeds from the IPO are expected to come in at US$5.47 billion

The number of shares China Railway will sell in Hong Kong and Shanghai: 8b

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