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UPDATE 1-Mini-car maker AviChina jumps in market debut

(Updates share price, adds details)

By Vicki Kwong

HONG KONG, Oct 30 (Reuters) - China's largest mini-car and helicopter maker, AviChina Industry & Technology Co Ltd , made a roaring trading debut in Hong Kong on Thursday after its HK$1.935 billion share sale drew heavy demand.

The stock was at HK$1.36 about 20 minutes after the market opened, about 12.4 percent higher than its offer price of HK$1.21 each, and one of the most actively-traded counters on the Hong Kong bourse.

Hong Kong's benchmark Hang Seng Index shed 0.5 percent to 12,069.84.

"The company's fundamentals are pretty good," said Herbert Lau, research director at Celestial Asia Securities. "The car sector is hot right now, and the helicopter business is a new industry in China."

Beijing-based AviChina raised HK$1.935 billion (US$248.08 million) from its initial public offering, the first from an offspring of a Chinese military conglomerate.

The company, the civil unit of Aviation Industry Corp of China II (AVIC II), is the largest mini-car maker in the country with a 41 percent market share. It is also the only domestic mass producer of helicopters and regional jets in China. AviChina's share offering was heavily oversubscribed, reflecting strong appetite for new equity issues in Hong Kong amid improving market sentiment in recent months.

The company sold 1.599 billion shares, or 35 percent of its enlarged share capital, in a listing sponsored by BOC International and ING Bank.

The retail portion of the IPO was raised to 50 percent from 10 percent after public investors subscribed for 154.9 times the number of shares on offer. The institutional tranche was more than 10 times covered, sources said.

European aerospace consortium EADS , the owner of commercial aircraft maker Airbus, has agreed to buy five percent of AviChina. The stake is expected to cost HK$276.48 million based on the IPO price.

AviChina expects to post a net profit of at least 450 million yuan (US$54.35 million) this year, which would be a 13.4 percent increase from 2002.

The firm has said that its car business, which made up 80 percent of revenues last year, will likely remain the largest source of income in the near term.

But it expects its aircraft assembly business to drive future growth as China's economy continues to expand.

AviChina plans to use proceeds from the IPO to expand its production capacity for cars, and develop its helicopter and regional jet businesses.

The company sold its IPO shares at 13 times forecast 2003 earnings on a fully-diluted basis.

Shares in Denway Motors Ltd , Honda Motor Co's joint venture partner in China, are trading at about 15.1 times forecast 2003 earnings.

(US$1=HK$7.8)