China First Heavy Industries Co set its offer price below the top of an indicated range following lackluster investor response in a sagging stock market amid increased supplies and higher valuations of other shares.

The country's biggest heavy machinery maker raised 11.4 billion yuan (US$1.67 billion) by selling 2 billion shares, or 30.59 percent of its enlarged capital, at 5.70 yuan each, lower than the top of an indicated range of 5 yuan to 5.80 yuan to investors, it said in a statement filed to the Shanghai Stock Exchange yesterday.

The subscription rate of its retail tranche reached 4.98 percent, the highest since the securities regulator resumed new share sales in June. But the rate indicated investors are losing appetite for new listings after the key index fell 9 percent so far this year.

The price/earnings ratio of China First Heavy was 41.22 based on its earnings in 2008. Haitong Securities Co estimated a reasonable price range should be between 6.25 yuan and 7.50 yuan.

Companies always set their offer prices at the top of an indicated range to raise the maximum amount of capital because investor enthusiasm almost guaranteed strong gains for new stocks on their trading debut.

However, the situation changed after China XD Electric Co and China Erzhong Group Deyang Heavy Industries Co fell below their offer prices on their debut amid weak market sentiment.

"The dynamic PE ratio in the secondary market keeps declining while that in the primary market still remains high, which will discourage investors buying new stocks when share supplies seem to be continuous," said Lin Jin, an analyst at Shenyin & Wanguo Securities Co.

The higher valuation of new listings has raised the China Securities Regulatory Commission's concerns and prompted it to speed up reform of the pricing mechanism.