China's largest property insurer, PICC Property and Casualty Co Ltd, has raised $693 million in an initial public offer that drew massive demand from retail investors.

Hong Kong's biggest IPO so far this year was priced at HK$1.80 a share, the top of an indicated range that had been set at HK$1.60-HK$1.80.

The offer raised HK$5.41 billion ($693.46 million) and gives the firm a market capitalization of about $2.5 billion.

The insurer sold just over three billion shares, or 28 percent of its enlarged share capital, excluding a 15 percent overallotment option.

Another two of China's major insurers are planning to sell at least $4 billion of shares in coming months as Beijing opens up its growing insurance industry and tears down a cradle-to-grave welfare system for its 1.3 billion people.

PICC's initial public offering, sponsored by Morgan Stanley and China International Capital Corp, drew strong interest from investors seeking direct exposure to China's booming economy.

"It's pretty significant because this is the first stock that allows you to take part in China's domestic, yuan-denominated financial industry," said James Cheng, a director at Asia Strategic Investment Management Ltd.

Retail investors in Hong Kong subscribed for about 130 times the number of shares in the public offer, while the institutional tranche of the deal was 15 times covered, the source said.

The retail portion of the share offer will be raised to 50 percent from 10 percent due to the oversubscription.

The huge demand looks likely to guarantee PICC a strong debut when it starts trading on Hong Kong's main board on November 6.

China Life Insurance Co, the country's largest life insurer, is set to follow PICC with a share offering in Hong Kong by the end of this year that could raise about $2 billion.

China's second-largest insurer, Ping An Insurance, is also eyeing an IPO in Hong Kong worth about $2 billion.

"But life and non-life are two different businesses. The pricing and valuation for life (insurers) are more complex," said Asia Strategic's Cheng.

PICC dominates China's property and casualty insurance market with a near 70 percent share of premiums. But its market share has been falling in recent years and the trend is likely to continue amid competition, the firm said in its listing document.

PICC plans to use proceeds from the deal to help improve its solvency margin, which fell short of the minimum level required by China's insurance watchdog at the end of last year.

The company won a vote of confidence recently when American International Group, the world's largest insurer by market value, said it would buy a 9.9 percent stake in the firm.

AIG is expected to pay about HK$1.91 billion for the investment before the overallotment option is exercised.

Based on the offer price, PICC sold its IPO shares at about 14.5 times forecast 2003 earnings, and 1.24 times book value for this year.

Insurance Australia Group Ltd, Australia and New Zealand's largest property and casualty insurer, is trading at about 14.2 times expected earnings for the year ending in June 2004, and a price to book multiple of 2.02 times.

PICC expects to earn at least 1.43 billion yuan ($172.71 million) this year, up from just 278 million yuan in 2002, according to its listing document.

The company in its current form was formed in July this year when its parent, formerly known as the People's Insurance Co of China, injected all of its commercial insurance operations into the listing vehicle.

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