Sihuan Pharmaceutical aims to raise $740 million in Hong Kong IPO

If successful, this will be the second Chinese medical company in the past month to transfer listings from another stock exchange to Hong Kong.

Sihuan Pharmaceutical, a Chinese manufacturer of cardio-cerebral vascular drugs which delisted from Singapore Exchange (SGX) last year, started bookbuilding yesterday for a Hong Kong public offering.

The company, which is based in the southern China province of Hainan, aims to raise up to HK$5.75 billion ($740 million) to fund the expansion of its product portfolio and its sales and marketing network. If successful, it will be the second Chinese medical company in the past month to transfer listings from another stock exchange to Hong Kong. China Medical System, a pharmaceutical product marketing group, delisted from London’s Alternative Investment Market (AIM) in September and raised $129 million ahead of a Hong Kong listing in the same month.

Sihuan’s optimism about the Hong Kong equity market is supported by the fact that earlier IPOs by its domestic peers have been very popular. Sinopharm Group, China’s largest drug distributor, raised $1.13 billion from an IPO last year that attracted $114 billion of total demand and saw its retail offering more than 500 times subscribed. Its IPO price of HK$16 per share, which translated into 25 times forecast earnings, was seen as “overvalued” by many equity analysts, but that didn’t hinder the stock from jumping 16% in its trading debut on September 23, 2009. The stock closed at HK$31.50 yesterday, almost double its IPO price.

And, in September this year, MicroPort Scientific, a Chinese medical equipment maker, raised $198 million from a Hong Kong IPO, which was followed by the earlier mentioned listing of China Medical System. Both deals were priced at the top the indicated ranges. MicroPort has performed better in the secondary market so far, and yesterday closed 35% above the IPO price at HK$8.27. Shenzhen-based China Medical System's share price has fallen 0.7% from its IPO price to a close of HK$5.02 yesterday.

The strong investor demand for pharmaceutical and other healthcare companies is believed to be bolstered by the rapid growth of China's medical market and healthcare expenditure. The nation's pharmaceutical market grew to Rmb243.9 billion ($36.5 million) in 2009 from Rmb107.2 billion in 2005, Sihuan said in a preliminary IPO prospectus.

Sihuan too has met with strong demand so far and, according to sources, has secured $190 million from six cornerstone investors. Billionaire investor George Soros has agreed to invest $40 million in the deal and China Life Insurance is investing $50 million.

Hillhouse Capital Management will purchase $45 million worth of shares and Yunfeng Fund, set up by's chairman Jack Ma, and Value Partners will each invest $20 million. CCB International Asset Management will subscribe to $15 million worth of shares.

Sihuan is selling 25% of the company, or 1.25 billion shares, all primary, at HK$3.88 to HK$4.60 per share. That means the company could raise between HK$4.85 billion and HK$5.75 billion. The deal comes with a 15% greenshoe option, which, if fully exercised, would allow the company to raise up to HK$6.61 billion.

The price range values the company at between 22.5 times and 26.7 times its projected earnings for 2011. The shares will be priced on October 20 and the trading debut is scheduled for October 28. Morgan Stanley and UBS are joint global coordinators and bookrunners for the deal.

Sihuan offers products in China covering several major medical therapeutic areas, namely cardio-cerebral vascular, anti-infective, metabolic, oncological and nervous system.

The company markets its products through a network covering about 10,000 hospitals via more than 2,000 distributors across all of China's 31 provinces, autonomous regions and cities. It had a domestic market share of 7.4% in 2009.

Sihuan made a Rmb313 million net profit in 2009 and, in the first six months of this year, the profit amounted to Rmb247 million. Sihuan listed on the SGX in March 2007 and de-listed from the Singapore board in December 2009.

¬ Haymarket Media Limited. All rights reserved.
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