China¡¯s rail to see more IPOs

At least five companies in China which are involved in rail — gear makers to rail operators — are getting ready to do IPO either this year or early next. An IPO is an Initial Public Offering where shares in the company are offered to the public for the first time.

There is a plan to spend serious money — nearly $200 billion — in 2006-2010 to improve the rail system which has created tremendous growth opportunities.

Nicholas Yeo, a fund manager at Aberdeen Asset Management, said, ‘In this sector there are not many to choose from and those that are listed now have probably gone up too much.’

Rail equipment makers, which analysts expect to be the first beneficiaries of China’s RMB1.5 trillion ($199 billion) rail investment plan in the current five-year plan to 2010, are trading between 35 times and 108 times forecast earnings in Shanghai. The new listings could open a window for interested buyers.

China’s two state locomotive and railway equipment makers — China Northern Locomotive and Rolling Stock Industry and China Southern Locomotive and Rolling Stock Industry — are seeking advice from regulators for a share sale, possible next year.
China Northern, a partner of Siemens AG and Alstomis are finalizing detailed plans for an IPO.
China Southern, which is a partner of Bombardier, is considering whether to apply for a separate listing. The company controls Hong Kong-listed Zhuzhou CSR Times Electric and mainland-listed Zhuzhou Times New Materials Technology and South Huiton. China Southern could perhaps sell $600 million to $700 million worth of A shares as early as the end of this year.
China’s Ministry of Railways three other units, China Railway Express Co., China Railway Engineering Group and China Railway Construction Group, are also seen seeking to float their shares this year or in 2008 to raise a combined US$4 billion.

All state-owned railway vehicle manufacturing enterprises in China are owned by China Southern and China Northern, except for those large railway maintenance vehicles owned by Kunming China Railway.

China’s Ministry of Railways has made financial reform of the sector a priority, urging railway operators and equipment makers to list their shares to boost capital and strengthen management.