China COSCO Holdings Co Ltd, the country's biggest container shipping firm, will raise up to HK$12.9 billion (US$1.6 billion) in a Hong Kong IPO, according to the company's prospectus released yesterday.

China COSCO, operator of the world's seventh-largest container fleet and the largest in the country, is offering 2.24 billion shares at HK$4.25 (54 US cents) to HK$5.75 (73 US cents) each.

The indicative price range of the shares represents 6.4 times to 8.7 times its 2005 forecast profit of 4.15 billion yuan (US$501 million), sources close to the deal said.

"The company is initially offering 224 million publicly offered shares for subscription, representing 10 per cent of the total number of H-shares initially being offered in the global offering," the prospectus states.

COSCO Holdings began the roadshow for the institutional tranche of the offering on June 13, and the offer price is expected to be fixed around June 25, and no later than June 27. Listing will commence on June 30.

The offering will be underwritten by HSBC, UBS Investment Bank and JP Morgan.

After the IPO, COSCO Holdings will be the third company with interests in container shipping to be listed in Hong Kong, following Orient Overseas (International) Ltd and China Shipping Container Lines Ltd, which is trading at around three and a half to four times 2005 earnings.

Three strategic investors have reached agreements with the company to buy about 30 per cent of the offering, said sources.

Hong Kong tycoon Li Ka-shing, who controls Hutchison Whampoa Ltd, the world's biggest container port operator, and Singapore State investment agency Temasek Holdings will each invest US$150 million in China COSCO. Lee Shau Kee, chairman of Henderson Land, has also agreed to invest US$100 million.

Zhang Xianbing, an industry analyst covering marine transportation for China Securities said now may not be the best time for China COSCO to be listed, as the global shipping market is in a downtrend.

"The slowing-down growth in transnational trade as well as the expanding transport capacities of the shipowners worldwide are projected by industry experts to result in an imbalance in supply and demand, and ultimately lead to falling freight prices," Zhang said.

The shipping price plunged 25 per cent at the end of May compared to the same period last year, according to Zhang. But if China COSCO delays, the situation could be even worse, Zhang added.

The shipping company collected revenue of 32.19 billion yuan (US$3.9 billion) last year, up 24.5 per cent, and its net profit rose by 139 per cent to 4.16 billion yuan (US$503 million).

JP Morgan expects COSCO Holdings' net profit to fall by 8 per cent next year, while UBS forecasts a drop of 18 per cent, mainly due to an imbalance between supply and demand of container vessels.

Source: China Daily