Nov. 30 (Bloomberg) -- China Railway Group, the world's third-largest construction company, raised more than HK$19.22 billion ($2.5 billion) pricing a Hong Kong share sale at the top end, three people familiar with the transaction said.

The Beijing-based company sold 3.326 billion shares, equivalent to a 16 percent stake, said the people, who declined to be identified before an official statement. The shares were set at HK$5.78 each, the company said late today in a filing with the Hong Kong Stock Exchange without elaborating.

China Railway priced the shares at the top end of a HK$5.03 to HK$5.78 range offered to investors as the Hong Kong market had its worst monthly percent drop in three-and-a-half years, reducing demand for IPOs. The company is raising funds to buy more equipment as China plans to spend 5.05 trillion yuan ($683 billion) on transport links in the five years to 2010.

``It's still worthwhile for investors to buy into its IPO, as China has a great story to tell about increasing its spending on railway infrastructure construction,'' said Wu Kan, an analyst at Shanghai Securities Consulting Co. in Shanghai. ``The debut performance won't be too crazy, given the current weak sentiment on the Hong Kong stock market.''

ABN Amro Rothschild LLC, BOC International (Holdings) Ltd., JPMorgan Chase & Co. and UBS AG arranged the Hong Kong share sale. China Railway raised $3 billion in a Shanghai initial public offering last week. The company said in the statement today that shares were set at 4.8 yuan (65 US cents) each for trading in mainland China and will release information about the level of demand for the stock on Dec. 6.

Beijing-based officials of China Railway couldn't be reached. Spokespeople for the investment banks declined to comment.

IPOs Losing Appeal

First-time Hong Kong public stock offerings of Chinese companies have lost some of their appeal with investors as the city's benchmark Hang Seng Index declines amid moves by the mainland government to cool economic overheating and the impact of the U.S. mortgage crisis on banks including HSBC Holdings Plc.

Sinotruk (Hong Kong) Ltd., the nation's biggest maker of heavy trucks, dropped 16 percent on the first day of trading Nov. 28 after a HK$9 billion IPO. Sinotrans Shipping Ltd., the dry bulk unit of China National Foreign Trade Transportation (Group) Corp., slid 13 percent when it began trading Nov. 23 following a HK$11.5 billion stock offering.

Dongyue Group, China's largest maker of chemicals for refrigeration and air conditioning, raised $144 million pricing its Hong Kong toward the low end of a range today, according to two people familiar with the sale.

Expanding Rail Links

China plans to spend 1.25 trillion yuan to expand and upgrade its railroad system and another 3.8 trillion yuan on its highways and waterways in the five years to 2010 to meet increasing demand to transport passengers and goods in the world's most populous nation and fourth-largest economy.

Railway builders and operators will need to raise as much as 1 trillion yuan from capital markets through the sale of stock or debt to fund the growth, Cao Yuanzheng, chief economist at BOC International, said on April 18.

China Railway was created in September from assets of China Railway Engineering Corp., the world's third-largest construction company by contract value last year, according to a share sale document. The company built the world's highest railway, connecting Tibet to western China.

China Railway Engineering was one of two companies constructing the nation's railways until 2004, when the government allowed builders of roads, ports and municipal works to compete for the work, the document said.

IPO Valuation

The final price of the Hong Kong share sale values China Railway at less than 27 times its 2008 earnings as projected by investment banks arranging the sale, two of the people said. China Communications Construction Co., which also builds transportation infrastructure, trades at close to 39 times next year's estimated profit, according to data compiled by Bloomberg.

China has the world's third-highest amount of railway tracks after the U.S. and Russia, according to the document. The country carries 24 percent of the world's railway traffic on a network 6 percent of the total global length.

China aims to expand the length of the network by 31 percent by 2020, the document said. Projected spending on railways in the five years to 2010 is 3.6 times that of the previous five years, the share sale document said.

Profitability of railway construction work has been limited by tight state control on prices that companies charge, said Wang Ren, a Hong Kong-based analyst at CCB International Securities, on Nov. 1.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

Last Updated: November 30, 2007 08:41 EST