Aug. 14 (Bloomberg) -- China South Locomotive & Rolling Stock Corp., the nation's biggest maker of rail and rapid transit vehicles, raised HK$4.16 billion ($533 million) from a Hong Kong initial public offering, said two people familiar with the sale.

The Beijing-based company sold 1.6 billion shares, or a 14 percent stake, at HK$2.60 each, said the people, who asked not to be identified before an official statement. The price, which falls in the middle of the HK$2.49 to HK$2.76 range that the stock was offered at, values the company at 13.8 times 2009 earnings, as estimated by banks involved in the sale.

The pricing signals investors are less willing to pay top dollar for new shares in Hong Kong, where the Hang Seng Index has slipped 24 percent this year on concern over the U.S. housing crisis and a global slowdown. At least eight companies have canceled Hong Kong IPOs this year, according to Bloomberg data.

``Long-term earnings growth should be stable, and stability is the best we can expect in the current market,'' said Winson Fong, who oversees $3 billion at SG Asset Management in Hong Kong. ``The pricing indicates that the response has been just average -- neither on the low end nor the high end.''

Fong declined to say whether he bought the shares in the Hong Kong sale, which was managed by China International Capital Corp. and Macquarie Group Ltd. The Hong Kong shares will start trading on Aug. 21, while a separate tranche of China South Locomotive stock sold earlier in Shanghai will start trading on Aug. 18.

Order Backlog

China South Locomotive, which builds locomotives, carriages and wagons, had an order backlog of 68.4 billion yuan by March, according to a prospectus posted on the Hong Kong stock exchange's Web site. The company, together with China North Locomotive & Rolling Stock Corp., controls 95 percent of China's train market, according to an Aug. 12 report by Core Pacific-Yamaichi.

China's cabinet, the State Council, earmarked 2 trillion yuan to expand and upgrade the nation's railway system between 2006 and 2020, according to a Macquarie report last month. China is lengthening and electrifying its railways and urban networks, raising passenger-train speed and replacing older carriages.

The company raised 6.54 billion yuan ($953 million) in Shanghai, pricing those shares at the top end after drawing demand 347 times the shares available, it said in a statement to the Shanghai stock exchange on Aug. 6. It sold 3 billion shares, or a 26 percent stake, at 2.18 yuan each.

The Hong Kong and Shanghai sales raised a combined $1.49 billion, making them the second-largest IPO by a Chinese company this year, according to data compiled by Bloomberg. The China Railway Construction Corp. sale was the largest, raising $5.7 billion in Shanghai and Hong Kong between February and March.

General Electric Co., which bought $30 million worth of shares in the Hong Kong IPO, trades at 13.3 times estimated 2008 profit. Siemens AG, which also makes locomotives, is valued at 17.1 times estimated earnings per share for the year ending September, according to data compiled by Bloomberg. The two companies also sell locomotives in China.

To contact the reporters on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net; Lee Spears in Beijing at lspears2@bloomberg.net.

Last Updated: August 14, 2008 02:26 EDT