A worker fixes scaffolding on a Beijing construction site.

China State Construction Engineering Corp., the nation’s largest housing contractor, raised 50.16 billion yuan (US$7.3 billion) in Shanghai in the world’s biggest initial public offering in 16 months.

State Construction is taking advantage of a stock market rally to raise money for real-estate projects as a recovery in the world’s third-largest economy boosts property prices. The IPO, the fifth since China ended a nine-month moratorium on sales in June, is the biggest worldwide since Visa Inc. collected more than $19 billion in March 2008.

“This is the first major state-owned construction firm listed,” said Donald Straszheim, managing principal of Straszheim Global Advisors in Los Angeles. “With the push by Beijing for infrastructure and growth of other SOEs, it is not surprising that it would be a new darling of investors.”

Investors’ hopes for business abroad may be too optimistic, Straszheim said in an e-mailed reply to questions. Governments overseas are starting to push back against China’s efforts to have its state-owned companies dominate industries, he said.

Construction projects

The IPO values State Construction at 51.3 times earnings, the company said. The benchmark Shanghai Composite Index of 896 companies trades at 36 times earnings after surging 83 percent this year. The sale of a 40 percent stake values the company at 125.5 billion yuan.

State Construction’s sale is the biggest in China since PetroChina Co. raised 66.8 billion yuan in October 2007. The stock is expected to start trading on July 29, according to Chairman Sun Wenjie. China International Capital Corp. was the sole underwriter.

The Shanghai Composite rose 1.4 percent Friday to a more than 13- month high.

“This IPO came at a point when the market rallied to a near frenzy,” said Hao Feifei, a Beijing-based analyst at Galaxy Securities Co. “Investors are clamoring for any IPOs.”

State construction plans to use the funds to speed up construction projects both in China and overseas, and to increase real estate investments.

China’s recovery

Operations may recover this year and earnings will climb as the 4 trillion yuan stimulus package begins to revive China’s economy, the company has said. State Construction’s profit fell 44 percent in 2008 to 4.92 billion yuan because of the slowing property market, rising raw material prices and higher tax payments.

Fixed-asset investments by China’s central and local governments may exceed 20 trillion yuan over the next three years, providing room to expand the company’s building operations, State Construction President Yi Jun said on July 21.

New home prices in 36 medium-sized and large Chinese cities rose 6.3 percent in June from a year earlier, the National Development and Reform Commission said on July 20. Nationwide property sales jumped 53 percent by value last month from a year earlier, and investment in real estate development increased 9.9 percent, the statistics bureau said July 10.

State Construction owns about 34.3 million square meters of land reserves and plans to develop the properties, according to its prospectus. As much as eight billion yuan of the IPO proceeds are earmarked for 24 commercial housing projects requiring a total investment of 15.8 billion yuan.

Source: Bloomberg