Fosun Pharma seals rare H-share placement

The privately-held drug maker raised $296 million from a fully-upsized placement of new H-shares, marking just the second time in nearly three years that a Hong Kong-listed company has sold new shares through a block sale.

Shanghai Fosun Pharma, the pharmaceutical unit of the highly-acquisitive Chinese conglomerate Fosun Group, took advantage of a strong rally in its stock price to raise HK$2.3 billion ($296 million) from a placement of H-shares on Tuesday night.

Fosun Pharma originally pitched a deal of 55 million shares, or 12% of its existing H-share capital. But the deal was quickly met with demand worth multiple times the shares on offer, allowing the company to exercise a greenshoe option of 25 million shares, said a source familiar with the situation.

In the end the company sold 80 million shares, representing 20% of its existing H-share capital, the maximum allowed under the general mandate.

The company’s new shares were offered at between HK$28.75 and HK$29.65 at launch and were priced close to the bottom end of the range at HK$28.8, implying a 7.25% discount over its HK$31.05 Tuesday close.

Fosun Pharma could hardly have picked a better time to execute the share sale. Its H-shares are trading at their highest level in nearly two years, and are now just 7% away from the an all-time high of HK$33.4, achieved during the mainland stock market rally in May 2015.

The transaction is significant for Hong Kong’s capital market because it is the second time a listed company has raised primary capital in the secondary market in nearly three years. Fosun Pharma’s fundraising exercise followed a similar equity raise late last week by China Yongda Automobile, which raised $115 million through a top-up structure.

These two deals may hint at a revival of primary capital raising after a long halt since May 2014, when Chinese auto maker BYD raised $550 million from the sale of new shares. Since then, all other block sales in Hong Kong have been shareholder selldowns of existing shares.

Fosun Pharma is tapping Hong Kong for equity capital for the second time since its initial public offering in 2012, after raising $230 million from a H-share placement in March 2014.

Similar to last time, Fosun Pharma has chosen to raise funds through selling H-shares instead of A-shares, which could technically fetch more because its shares in Shanghai are trading at a 13.5% premium to its Hong Kong shares.

Analysts believe the company is raising offshore capital in preparation for further overseas acquisitions, following its $1.26 billion purchase of an 86% stake in India’s Gland Pharma last year. Fosun Pharma’s gearing ratio was already at a health level at 28% as of the end of March, and therefore proceeds from the share sale could help prepare the company for another big acquisition.

Fosun Group founder Guo Guangchang has reportedly interested in buy New York-listed health supplement distributor GNC, while there is also a possibility that the tycoon will look into acquiring Australian vitamin maker Blackmores, as FinanceAsia recently suggested.

In recent years, Fosun Pharma has developed a pattern of raising equity capital offshore and debt capital onshore in a bid to enjoy the falling borrowing costs in China. The company raised Rmb3 billion ($470 million) though a domestic bond sale in March last year, and has filed for a bigger Rmb 7 billion bond sale this year.

Fosun Pharma said it will use the proceeds from the share sale for general corporate purposes and for financing potential mergers and acquisitions domestically or overseas.

Morgan Stanley was the sole bookrunner of Fosun Pharma’s share sale.

¬ Haymarket Media Limited. All rights reserved.
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