3S Bio raises a healthy $711m via HK IPO

The mainland Chinese biotech firm generated strong demand, with the retail tranche of the offering on the Hong Kong bourse 200-times oversubscribed.

Biotech company 3S Bio raised $711 million in a Hong Kong initial public offering on Friday after pricing shares at the top of the range.

The company, which produces drugs to treat bleeding disorders, will use the proceeds from the flotation to fund acquisitions and boost its staff to grab a larger share of China’s drug market.

In total, 3S Bio and Citic’s private equity unit sold 606.1 million shares at HK$9.10 per unit, the top of the HK$8.30 to HK$9.10 indicative price range, according to a source close to the deal, who said that “every man and his dog” wanted a piece of the biotech company.

The retail tranche was oversubscribed by 200 times, with over 400 lines participating. “Allocations were very, very difficult,” the source told FinanceAsia, noting that he spent all Friday night on the phone trying to sort out investor allotments. “This is a great company in a great sector, and people were willing to pay a premium for it.”

Excluding the retail tranche, the book was 60 times oversubscribed. 3S Bio identified institutions who had invested when it was previously listed on the Nasdaq, mainly some long-only institutional investors and China-focused firms. Other investors included large bio pharmaceutical companies in the US.   

There was an 80%/20% primary and secondary split. Citic's private equity unit sold 121.2 million shares, bringing its stake post-shoe to 28.3%. Previously it owned 43%.

Goldman Sachs, Morgan Stanley and Citic Securities handled the IPO.

While 3S Bio does not have any direct comparables, prospective investors viewed CSPC Pharmaceutical and Luye Pharma as peers, both of which have had successful run-ups in share prices this year. This led some of private equity backers to offload a portion of their stakes to cash in on gains.

Luye shares have jumped 35% since its $764 million listing in July 2014. The Government of Singapore Investment Corporation, also known as GIC, and private equity firms CDH Capital and New Horizon raised $100 million from a block trade in January. GIC and CDH sold 17.5% stakes each in Luye, while New Horizon offloaded 15%. All three remain major shareholders.

Similarly, strong performance by CSPC Pharmaceutical — it is up 12% year-to-date — prompted private equity firm Hony Capital to continue to trim its stake. It raised $1.26 billion in a block trade in April and $484 million in May.

Bio tech outlook
In its prospectus, 3S Bio argues that biotechnology has revolutionized the pharmaceutical industry by addressing unmet medical needs and offering innovative treatments for a variety of diseases.

3S Bio — along with the biotechnology industry generally — receives government support, having been selected by the State Council as a key strategic industry. This has led to impressive growth.

The mainland’s biopharmaceutical market reached Rmb27 billion in 2013, representing a compound annual growth rate (CAGR) of 25.2% from 2009 to 2013, outpacing the growth of China’s overall pharmaceutical industry, according to the company’s A-1 filing citing IMS Health Incorporated, a pharmaceutical and healthcare research firm.

The biopharmaceutical market is forecast to reach Rmb62.1 billion in 2018, representing a CAGR of 18.1% for the next three years.

Founded by researcher Jing Lou and his father Dan Lou in 1993, 3S Bio went public on the Nasdaq in 2007. It was taken private by Citic’s private equity arm, Jing Lou and other shareholders in 2012.

Separately, Chinese travel site Qunar raised $325 million from a follow-on share sale after pricing shares at HK$47.50 per unit.

The ADR sale — the first since its Nasdaq IPO in 2013 — consisted of roughly 8 million primary shares which priced roughly 25 cents off of the close on Friday. The deal had been marketed under the sole lead of Goldman Sachs since June 2. Shares jumped 11.7% from $46.02 on June 2 to $51.41 on June 5.

“Normally when you do these marketed offerings in the US, you expect to see the stock come off,” a source close to Qunar said. “Qunar had a great-run up, which means we had lots of demand across a number of accounts.”

It was six times covered with a very concentrated book — over 90% of the deal went to the top 15 investors. The book was mostly made up of global long-only institutional investors that were already existing shareholders, primarily from Asia and the US.

The share-sale coincided with a $500 million investment in Qunar by US private equity firm Silver Lake and investment manager Hillhouse Capital. Silver Lake purchased $330 million worth of convertible bonds issued by Qunar, while Hillhouse will purchase the remaining $170 million. The bonds carry an interest rate of 2% with a conversion price of $55.

In total, Qunar raised over $800 million from the concurrent ADR  share-sale and the convertible bond.

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