Shanghai Jinjiang International Hotels, the mainland's biggest hotel operator, will spend nearly a quarter of its US$310-million Hong Kong IPO to renovate several of its hotels, the firm's top executive said yesterday.

Jinjiang plans to transform historic landmarks such as the Peace Hotel into a five-star hotel, and expects this to double its average room rate from 900 yuan (US$112.5) to 1,800 yuan (US$225), the rate at the city's upscale Shangri-La Pudong or Portman Ritz Carlton.

"Peace Hotel accounted for just 5 per cent of our revenue. Our revenue will not be affected during the renovation," said Yang Weimin, chief executive officer at Jinjiang.

Jinjiang is selling 1.1 billion shares in a price range of HK$1.81 to HK$2.2 per share, representing 24.3 to 29.53 times its prospective 2006 earnings.

The institutional portion of Jinjiang's IPO was more than 10 times covered and will close on December 8. The retail portion of the flotation opens on Thursday with the trading debut set for December 15.

On an average, global peers such as Mariott International trade at 26.8 times their 2006 forecast earnings. Shangri-La Asia and Mandarin Oriental trade at 35.7 times and 20.4 times their prospective earnings, respectively, BNP said in a research report.

Underwriter UBS reckons Jinjiang is at a 20 per cent discount to the average market multiples, as the performance of the firm's hotel assets in Shanghai lags that of international rivals. The bank was also concerned about execution risks related to the upcoming renovation and expansion.

Jinjiang runs 263 hotels with 51,588 rooms in operation or under development as at the end of October, consisting of 165 budget hotels and plans to expand to about 600 budget hotels by 2010.

Yang expected the Beijing Olympics in 2008, the Shanghai World Expo in 2010, recurring events such as the Formula One Grand Prix, and rising domestic wealth and tourism to drive hotel demand in Shanghai, one of China's richest cities.

Jinjiang has forecast its 2006 net profit would come to at least 331.1 million yuan, an increase of 5.8 per cent compared with last year.

The company recorded 1.45 billion yuan in revenue in the first half of 2006, with 81 per cent of that from star-rated hotels and 14 per cent from budget hotels.

The offering is sponsored by UBS and BNP Paribas.