(Agencies)
Updated: 2007-09-25 11:21

Shares in China Construction Bank, China's second largest bank by assets, began trading Tuesday on the Shanghai Stock Exchange after its initial public offering (IPO) raised 58 billion yuan (US$7.7 billion), a record for a domestic bourse.

The Beijing-based bank's shares opened at 8.55 yuan, up 32.6 percent from their IPO price of 6.45 yuan. The shares rose by as much as 40 percent in early trade but by midmorning were quoted at 8.77 yuan, up 36 percent from the IPO price.

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A double-digit gain was virtually assured - most shares surge by at least that much in the Chinese mainland's frenzied markets these days.

Analysts said, though, that with a slew of big IPOs hitting the market, the share gains may not match those of previous big offerings.

The bank, which already has shares traded in Hong Kong, issued 9 billion shares in its IPO and drew a record 2.26 trillion yuan in subscriptions, almost 40 times the amount it was trying to raise.

The IPO far exceeded the 46.6 billion yuan raised in the Shanghai portion of a dual share offering by the Industrial and Commercial Bank of China in October 2006 - the previous record for a domestic share offering.

Massive demand for shares, especially from retail investors, has helped Shanghai's benchmark Composite Index more than double since the beginning of this year.

Bank of America Corp holds an 8.19 percent stake in the Construction Bank after its stake was diluted by the IPO from 8.5 percent.

The Construction Bank, originally set up to fund property and infrastructure projects, was the first of China's four big state banks to stage an IPO in Hong Kong, in October 2005. But it trailed rivals the Industrial & Commercial Bank of China and the Bank of China in seeking a domestic share listing.

Proceeds from the IPO will be used to build up the bank's cash base and upgrade services and management, the lender said.

The Construction Bank reported its first-half net profit rose 47.5 percent to 34.2 billion yuan from a year earlier, thanks to higher interest and fee-based income.

The bank's property lending business has been a source of fast growth but also represents a liability, analysts say.

In a recent report, ratings service Moody's Investors Service noted a need for the bank to "to improve risk management and control measures."

It faces "higher exposure to the volatile real estate market than its peers," the report said, while noting significant improvements in recent years.

China Construction Bank's Hong Kong-listed shares were down 2.9 percent in early trade Tuesday at HK$7.28.