The company, known as Sinopec, will offer 2.8 billion shares on the domestic investors-only A-share market in August. It is the largest offering ever for the market, topping Baosteel's 7.7 billion yuan (US$962 million) last year.

"The price is based on the active market demand and the forecast for the A-share market," Sinopec spokesman Chen Ge said. "Although 90 per cent of our investors have made offers at around 4.3 yuan (52 US cents) per share, we decided to set the price a little bit lower because we have promised to give up some of our interests to investors."

At the 4.22 yuan (51 US cents) price, Sinopec's earning ratio is 20.1 times, greater than Baosteel's 18 times.

Shawn Xu, managing director of the research department of China International Capital Corp, which is the leading underwriter for Sinopec's offering, said the pricing is rational and leaves space for shares to rise in the near future.

"We predict that the share price will rise to between 5.4 and 6.4 yuan (65-77 US cents) per share," Xu said.

A fund manager from Xiangcai Securities also said the pricing is "basically rational," adding that the price-to-earning ratio is almost the same as other big blue-chips.

The manager said the shares would rise to 6.4 yuan (77 US cents) after trading begins next month.

Sinopec said 30 per cent of its shares would be sold to retail investors and the rest to institutional investors, including the social security foundation, which is allowed to invest in stocks for the first time. The foundation is expected to buy 300 million shares of Sinopec.

But the manager said the introduction of the foundation is likely to cast some shadows on the performance of shares of Sinopec in the future.

"It is believed, as far as I know, the foundation's purchase of Sinopec's shares is only for speculation. I do not believe that the foundation will hold its shares for a long period. If the price is appropriate, I think it would sell out the shares to make profits," said the manager who declined to be identified.

The foundation is used to fund pensions and unemployment insurance.

Xu denied that the foundation would take advantage of purchasing shares of Sinopec, saying that the foundation should take the risk as any other institutional investors. The foundation is not allowed to sell its holdings for eight months.

(China Daily 07/13/2001)