Warburg Pincus has raised $241.5 million following a share sale in China Biologic Products.
The US private equity firm saw its stake decrease from 44.2% to 34% after the sale, according to a source close to the deal.
The sale in the Nasdaq-listed biopharmaceutical company has been marketed for the past few days in the US, which contributed to a decline in share price performance. After hitting $120.85 per unit on June 3, shares fell by 13% up to June 10.
Sources close to the deal note that it’s very typical for a drop in performance before a share-sale in the US.
“It’s very standard for marketed-follow-ons when there’s bookbuilding during trading,” a second source told FinanceAsia. “The market adjusts for the sale.”
Investors that knew the fundamentals of the company didn't shy away from the price drop, anticipating a sharp recovery upside post-share sale, the second source said.
“When the filing was made over the weekend, there was a pretty useful price reduction,” the second source said. Shares dropped 12.6% from June 5 to June 8. “It makes it a lot more interesting to investors.”
Sentiment for healthcare stocks in general is positive — the share-sale in China Biologic Products follows 3S Bio’s tremendously successful initial public offering on June 7. The retail tranche was oversubscribed by 200 times, with over 400 lines participating. This allowed the issuer to price shares at the top of the indicative range.
As such, the lead banks Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley had no problem drumming up interest for the Chinese biopharmaceutical company, boosting the base deal from 2.5 million shares initially to 3 million. Of the 3 million shares, Warburg Pincus sold 2.3 million, with the remaining 700,000 primary shares.
If exercised, the greenshoe will tack on an additional 375,000 shares to the base deal, 270,000 of which will be secondary.
The deal was multiple times covered, with shares finally pricing at $105 per share late on June 10 New York time. This represents a very tight discount — under 1% — to the June 9 close of $105.90 per share.
“Obviously there were share price movements the day or two before the pricing, but at the end of the day, the shares priced at a very, very tight discount,” the second source told FinanceAsia. Given the company is listed on the Nasdaq, the majority of the interest came from US investors, mainly long-only institutional investors. In addition, a number of existing shareholders saw it as an ideal opportunity to top up on existing stakes.
In total, the deal raised $310 million, with Warburg Pincus securing $241.5 million from the share sale. China Biologic meanwhile made $105 million.
Warburg Pincus has invested in China Biologic through a series of share-sales on the open market from 2010 to 2013.
The Nasdaq is up 7% so far this year, with Nasdaq-listed Chinese companies generally strong. Year-to-date, WuXi Pharmatech is up 29.6% while iKang Healthcare is up 33.6%.
A few Chinese healthcare on the Nasdaq have not fared so well. Tianyin Pharmaceutical has dropped 41.1% up to June 10, and Skystar Bio–Pharmaceutical is down 25.4%.
China Biologic is up 56.5% year-to-date.
Some analysts are positive on Beijing-based China Biologic, which primarily focuses on research, development, manufacturing and sales of plasma-based biopharmaceutical products, which are used for critical therapies during medical emergencies and to prevent and treat life-threatening and immune-deficiency diseases.
“The sector has very high barriers to entry and the current unmet demand for human plasma will likely persist,” according to research by BOCOM International. “On the supply side, the growth drivers mainly include newly opened plasma stations, which will relieve the tightness of plasma supply, increasing the variety of plasma-based products and continuous improvement in plasma collecting techniques.”
BOCOM International is forecasting sales growth of 17.1% in 2015 and 20.6% in 2016.
“We believe the company still lacks market recognition,” the research noted. Investors remain unaware of gradual liberalisation of plasma collection or the short-term benefits now that plasma components can be stored.
In addition, the market has not yet realised the large potential of the company’s exclusive products, such as the placenta polypeptide injection, BOCOM International research said. Pelacenta polypeptide injections — made from amino acids, peptides, proteins and fatty acids — are used to treat cellular immune deficiency diseases, viral infections, and leukopenia, a condition of low white blood cell counts.
Warburg Pincus has been one of the most active participants in secondary markets in the past few weeks, as the US private equity firm seeks to take advantage of surging stock markets in Hong Kong to cash in on sharp gains.
On May 27, Warburg Pincus pared down its stake in Chinese car rental company Car Inc and raised $401 million.
It also hopes to sell some of its shares in AAG Energy Holdings, a company that produces energy from natural gas found in coal. The company is attempting to revive its Hong Kong IPO, and Warburg Pincus will only sell shares if there is enough demand to exercise the greenshoe option.
Warburg Pincus meanwhile on June 9 purchased 280.8 million shares in Franshion Properties China, the real estate company controlled by Sinochem Corp.
Sell-down volumes in Hong Kong-listed companies hit record highs in April of $3.57 billion, and totalled $1.84 billion in May, according to Dealogic data, as savvy investors — mainly private equity investors — sought to take advantage of the run up in stock markets to offload stakes in Chinese companies.
However there is evidence the recent rallies may be pulling back. The Shanghai Stock Exchange Composite Index has experienced its longest losing streak in a month amid fears that a flood of new shares will lead to money being pulled from existing equities.
The Shanghai Stock Exchange Composite Index has dropped 0.20% this week, while the CSI 300 Index fell 0.88% in the same time frame.
Sentiment towards A-shares has also soured after MSCI announced it will not include China A-shares in its emerging market indices yet. The firm said that despite the substantial wave of reforms over the past year to open China’s markets, there are still three key accessibility hurdles to overcome — the quota allocation process; capital mobility restrictions; and beneficial ownership.