DONGFENG Motor Group hopes to raise as much as US$590 million in a Hong Kong initial public offering (IPO) set for early December, according to a sales document seen by reporters Tuesday.

Hubei Province-based Dongfeng, the country's No. 3 carmaker, is offering 2.483 billion shares at HK$1.45 (US$0.19) to HK$1.85 each, the document said.

Investors' interest in Hong Kong IPOs has been cooled by the disappointing after-market performance of some recent new listings.

The offering also comes as China's carmaking industry faces challenges ranging from overcapacity to a slowdown in fixed-asset investment and potential increases in automobile consumption taxes.

But Dongfeng's deal has already secured about US$80 million to US$100 million in subscriptions from two strategic investors - Singapore-based Temasek Holdings and Asia-focused bank Standard Chartered (HK: 2888) - before opening the institutional order book Thursday, sources close to the deal said.

That would be about 17 percent of the IPO shares on offer.

At the proposed range, Dongfeng shares would be priced at about 7.97 to 10.17 times 2005 earnings of 1.56 billion yuan (US$192.36 million), or 5.92 to 7.55 times 2006 earnings of 2.1 billion yuan, based on the average forecasts of the deal's three sponsors.

The lower end of the range would value Dongfeng, which makes cars, buses, trucks, engines and auto parts, at a discount to mainland rival Denway Motors (HK: 0203).

Denway, which makes cars under a joint venture with Japan's Honda Motors Corp. in the southern city of Guangzhou, trades at 8.3 times 2005 earnings and 7.8 times 2006 earnings.

Dongfeng had tested investor demand at a higher valuation of between nine to 12 times 2005 earnings. But many fund managers baulked at that range, which was at a premium to Denway's.

Editor: Yan