Top mainland packaging paper supplier Nine Dragons Paper Industries Co Ltd plans to raise about US$350 million in a Hong Kong listing next month to fund expansion, people familiar with the situation said yesterday.

The company, based in Dongguan in South China's Guangdong Province, is fully owned by America Chung Nam Inc, a Californian company that works as a broker to secure and supply recycled paper for affiliated mills on the mainland.

"Nine Dragons hopes to launch the deal in the week of January 16. It all depends on if the firm can pass a listing hearing next week," one source told Reuters. People familiar with the deal expect shares in Nine Dragons to start trading on the Hong Kong stock exchange around mid-February.

The offering is being arranged by BNP Paribas Peregrine and Merrill Lynch.

Suppliers of packaging paper have enjoyed strong demand for containerboard on the mainland, driven by domestic consumption of consumer merchandise and global outsourcing of industrial activities to the mainland.

The Chinese mainland, the largest paper and board consumer in the world after the United States, is still experiencing a shortage of containerboard as domestic capacity falls sort of demand.

The Chinese mainland produced about 18 million tons of containerboard in 2005, while its consumption reached 20.6 million tons, according to China Paper Net, a mainland paper-industry website (www.china-paper.cn).

The mainland's paper and board per capita consumption was about 42 kilograms in 2004 - just about one-tenth that of developed countries, such as the United States, Japan and Canada, according to China Paper Net.

Hong Kong-listed Lee & Man Paper Manufacturing Ltd, the mainland's second-largest containerboard manufacturer, after Nine Dragons, has seen its share price rise more than 37 per cent in the past year to trade at 13.4 times 2006 earnings.

Lee & Man, also based in Dongguan, last month raised HK$1 billion (US$128 million) through selling five-year convertible bonds to fund the acquisition of a paper-making machine and for the construction of its new Chongqing plant.

Lee & Man expects its annual capacity to increase 15 per cent to 2.35 million tons of containerboard by 2007 from 2.05 million tons in 2006.

America Chung Nam first began planning the investment in containerboard production in 1995 to serve the strong demand for packaging materials driven by South China's rapidly growing manufacturing sector.

Nine Dragons started up its first paper-making machine in March 1998, with clients ranging from electronics manufacturers to food producers.

The company currently has 10 paper-making machines and aims to boosted its capacity to 5.2 million tons per year within two years, according to the company's website (www.ndpaper.com).

Nine Dragons and Lee & Man together account for about 19 per cent of the mainland's containerboard market.

Editor: Yan