Private equity firm Hony Capital has raised $1.26 billion after selling off its entire 23% stake in CSPC Pharmaceutical, exploiting the company’s near 20% 11-day rise as mainland investors continue to flood the Hong Kong markets.
CSPC Pharmaceutical’s shares have jumped 18% since March 27, in line with the Hang Seng Index, which has risen 13% in the same time period.
The accelerated share sale launched late Thursday evening in Hong Kong, with Hony Capital seeking to raise up to $1.26 billion under the joint leads of CICC, Goldman Sachs, Morgan Stanley and UBS.
Some 1.37 billion shares were on offer — all secondary — at a price range between HK$7.03 ($0.90) to HK$7.15 per share, representing a 6% to a 4.4% discount to the April 16 closing price, according to a term sheet. The shares on offer totalled 23.2% of the company’s enlarged share capital.
Shares priced at the top of the range late on Thursday night at HK$7.15 per unit, highlighting strong demand for the company and allowing Hony Capital to raise $1.26 billion from the accelerated share sale, a source close to the deal told FinanceAsia.
Allocations were still being finalised late on Thursday night, but sources close to the deal said that over 100 accounts had placed orders, noting that the final book would be heavily skewed towards anchor investors.
CSPC, initially manufacturer of bulk drugs — such a penicillin and vitamin C — in 2013 transformed itself into a producer of innovative and branded drugs through acquisition of three businesses from its parent company.
The group established an oncology drug division and continues to invest in research and development. It has a number of number of new projects awaiting approval before coming on the market, including drugs for diabetes, stokes, influenza and cancer.
China’s aging population, increasing urbanisation and higher incomes should benefit pharmaceutical such as CSPC, which have significant market share.
Hony has been trimming its stake in the pharma company for the past year. It sold some of its shares in April 2013, raising $154 million, the later in May 2014, raised $484 million through an accelerated block trade after selling 600 million shares at HK$6.25 each. Hony at the time remained a significant shareholder, owning 74% of the Chinese pharmaceutical company. It then divested an 11% stake in August 2014, bringing its stake from 62% to 51%.
This block is latest as Hong Kong’s stock markets continue to soar following the news that Chinese mutual funds will be allowed to participate in the Shanghai-Hong Kong Stock Connect programme. The Hang Seng Index has rallied to a seven-year high since the Easter holiday, surpassing the 28,000 mark as Chinese investors continue to purchase H-shares, which are currently cheaper than A-shares.
A-shares are trading at a 90% premium to H-shares, which has boosted Hong Kong's daily turnover from $10 billion to between $30 and $35 billion.
The CSPC sale is the latest after a flurry of activity in secondary markets this week, with issuers looking to tap the euphoric investors to raise fresh capital. A total of $7.2 billion was raised in Asian capital markets ex Japan this week via 53 deals, more than triple the $2 billion raised in the same period last week, according to Dealogic data.
On Wednesday, Carlyle sold its entire stake in Haier Electronics Group, cashing in on a near four-year investment in the Chinese appliances company. Since the US private equity firm made its investment in August 2011, Haier shares have gained more than 160%.
A block in Luye Pharma Group worth up to $77 million meanwhile launched on Wednesday, with some 55.8 million shares — all secondary — on offer between HK$10.45 to HK$10.66 per unit. Morgan Stanley was the sole bookrunner.
It was the third deal for Morgan Stanley in as many days, with the US investment bank launching a $50 million accelerated placement in Lee’s Pharmaceutical Holding on Tuesday and a $106 million block in Cosmo Lady, the Chinese lingerie company, on Monday.
Goldman Sachs oversaw a $25 million share sale in Shanghai Pharmaceuticals Holding on Tuesday, while Credit Suisse led a 85 million-share sale in New China Life that netted Singaporean life insurer Great Easter Holdings some $555 million on Monday.
UBS was also busy at the start of the week, securing $245 million after selling 490 million shares in China Cinda Asset Management and overseeing a share sale in Far East Horizon that netted Singapore sovereign wealth fund GIC $65 million.