Sept. 18 (Bloomberg) -- China Construction Bank Corp. raised 58 billion yuan ($7.7 billion) in the world's second-biggest share sale this year, three people with direct knowledge of the matter said.

China's second-largest bank sold 9 billion shares in Shanghai at the top end of a 6.15 yuan to 6.45 yuan range, the people said, declining to be identified before a public announcement. Investors ordered a record 2.3 trillion yuan of the Beijing-based company's stock, they said.

Chinese investors, undeterred by the credit market turmoil that caused global banking stocks to tumble this month, are clamoring for shares in Construction Bank, bailed out by the government in 2003. The last three initial public offerings in China more than tripled on their first day of trade, and the nation's benchmark index has quadrupled in the past year.

``Investors can't get enough of IPO shares even at the high end of the price range because the return on the first trading day is huge,'' said Wang Chuanglian, who helps manage the equivalent of $1.6 billion at Great Wall Fund Management Co. in Shenzhen. ``CCB is the best managed among the state-owned banks and deserves to trade at a premium to its peers.''

The offer price values Construction Bank's Shanghai shares at 23 times estimated full-year earnings, according to data compiled by Bloomberg. Yuan-denominated shares of Industrial & Commercial Bank of China Ltd., the nation's largest, trade at 29 times forecast profit. On average, stocks on the benchmark CSI 300 Index sell for 44 times earnings, Bloomberg data show.

Price Differentials

Construction Bank sold shares at a discount to its Hong Kong stock, which trades at HK$6.84 (6.61 yuan). The bank first sold shares in the city in October 2005 and the stock has almost tripled since then.

``This is a great price, because there are strong reasons for Construction Bank to be traded at a significant premium to ICBC and Bank of China Ltd.,'' said Bill Stacey, Credit Suisse's director of equity research in Hong Kong. Bank of China, the nation's second-largest, trades at 28 times forecast profit.

Chinese companies traded in Hong Kong typically sell their mainland shares at a discount. That rebate tends to vanish quickly: The China stocks of companies listed on both exchanges trade at a premium of between 19 percent and 918 percent to their Hong Kong shares, according to Bloomberg data.

China restricts inbound and outbound investment in equities and lacks a developed futures market, barring investors from profiting on price differentials by selling Chinese shares short. In a short sale, an investor sells borrowed shares, hoping to profit by repurchasing them later at a lower price and returning them to the lender, pocketing the difference.

`Safe Bets'

With limited investment options, billions of dollars of Chinese savings have flowed into equities, inflating prices.

``It is an incipient bubble,'' Jim Rogers, chairman of New York-based Beeland Interests Inc., said in an interview in Shanghai. ``There is a giant amount of liquidity'' that's getting ``bigger and bigger because the money is trapped inside China,'' he said.

Construction Bank, established in 1954 to finance building roads, bridges, dams and other infrastructure, has turned into the country's largest mortgage and real-estate lender. It provides 22 percent of the nation's mortgages and about 13 percent of overall loans.

China spent $45 billion in December 2003 bailing out Construction Bank and Bank of China, using about a tenth of its foreign exchange reserves at the time. The government was forced to rescue its four largest banks after decades of state-directed lending caused bad loans to pile up.

Profit Increase

The company's profit jumped 47 percent in the first half from a year earlier on more lucrative lending and increased fee- based services. The bank's bad-loan ratio of 2.95 percent at June 30 was the lowest of China's four largest state-owned banks.

``Investors are seeking IPO shares as safe bets, as there aren't any bargains in the stock market,'' said Yan Ji, who helps manage about $517 million at HSBC Jintrust Fund Management Co. in Shanghai.

Bank of America Corp., which paid $2.5 billion yuan for a 9 percent stake in Construction Bank in 2005, will see its holding diluted to 8.2 percent. Central Huijin Investment Co., a government investment arm, will control 59.1 percent of the bank.

Citic Securities Co., China International Capital Corp. and China Cinda Asset Management Corp. are arranging the sale. Spokespeople for the three firms declined to comment or weren't immediately available. Construction Bank spokesman Tracy Hu wasn't immediately available to comment.

To contact the reporter responsible for this story: Luo Jun in Shanghai jluo6@bloomberg.net

Last Updated: September 18, 2007 07:36 EDT