Dongfeng Motors, China's third-largest car maker, raised HK$3.97 billion (US$512 million) after it priced its initial public offering (IPO) at HK$1.6 (US 20.5 cents) per share yesterday.

The proceeds of the IPO will be mainly used to repay debts.

10 percent of Dongfeng's shares were for retail subscription. They were oversubscribed by 100 percent, while the rest, for institutional investors, were six times oversubscribed.

Dongfeng will be the biggest Hong Kong-listed mainland carmaker when its shares begin trading in Hong Kong on December 7.

The Wuhan-based company, which makes cars under ventures with Nissan, Honda and Citroen, floated its shares at 9.1 times the forward price-earnings (P/E) ratio, compared with the 8.5 P/E ratio of its rival, Denway Motors.

Dongfeng's profit fell by 11 percent to 660 million yuan (US$82 million) in the six months ending June 30, as higher material costs reduced margins.

Dongfeng executive director and president Liu Zhangmin promised investors that the company's dividend payout ratio after the share listing would be not less than 15-20 percent.

Chinese carmakers face fierce competition in the world's third largest vehicle market, with profit margins halved for most of the car markets this year.

According to official estimates, sales of passenger cars might grow by about 10 percent in 2006, a massive fall from the 76 percent surge in 2003 and the 50 percent increase in 2002.

Listing sponsors China International Capital Corp Ltd, Deutsche Bank, and Merrill Lynch Far East were all confident that Dongfeng's listing would make a satisfactory debut next week.

The firm plans to invest 21.8 billion yuan (US$2.1 billion) in the next couple of years to boost annual capacity by 65 percent, up to 1.233 million units by 2008. The aim is to maintain its leading position in the industry.

"Even though the net proceeds of the public offering will mainly be used for the reduction of debt, the company's gearing ratio after floatation will remain at a normal level for international peers," Chairman Xu Ping stressed.

"The capital expenditure will be funded through joint venture firms which have a strong cashflow in order to support production expansion," Xu said, downplaying market concern about the company's liquidity.

According to the company's offering document, Dongfeng aims to boost sales to make up for declining margins, and to maintain its 13 percent share of China's vehicle market.

(China Daily December 1, 2005)