Shipping firm's IPO bottoms out

HONG KONG - China Cosco Holdings has priced shares in its initial public offering at the bottom of its targeted range on concern a decline in freight rates will cut earnings.

China Cosco raised HK$9.52 billion ($1.72 billion) after selling shares at HK$4.25. The Beijing-based company had sought as much as HK$5.75, bankers have said.

Investors in China Cosco were wary of paying too much for the stock because of concerns rates would fall when newly built ships came into service. Freight rates, which soared during a four-year boom in Chinese exports to the US and Europe, may decline in 2006 as fleets expand, London-based Drewry Shipping Consultants Ltd forecasts.

"We're not interested in China's shipping industry because the growth cycle is almost stretched to the limit and a profit slowdown is expected," said Tim Leung, at IG Investment Management (Hong Kong) Ltd, who helps manage US$370 million of Asian stocks and didn't buy the shares. "Overall, the sector isn't attractive."

The sale price represents 6.7 times the 4.15 billion yuan ($501 million) profit forecast for 2005 made by the firm. The valuation includes its 52 per cent stake in Cosco Pacific, a Hong Kong-listed container terminal and leasing operator.