Private equity firm Hony Capital trimmed its stake in CSPC Pharmaceutical on Monday, raising $484 million through an accelerated block trade after pricing 600 million shares at HK$6.25 each.
Hony remains a significant shareholder, owning 74% of the Chinese pharmaceutical company, although it will likely sell more shares after its six-month lockup expires. The HK$6.25 price tag represents a 7.1% discount to the May 26 closing price of HK$6.73.
The stock rose 6.8% once books opened on the back of solid first quarter earnings, although retreated again on Tuesday, dropping 7% and closing at HK$6.28.
CSPC’s chairman Cai Dongchen bought around $85 million worth of shares and is also subject to a six-month lockup.
The deal was covered one hour after books opened under the lead of Goldman Sachs, UBS and Morgan Stanley. Participation from long-only institutional investors was particularly strong – seven of the top 10 investors were long-only firms, one banker close to the deal told FinanceAsia. The rest of the book was made up of hedge funds.
Seventy investors in total took part in the deal, mostly from Asia, as Monday was a bank holiday in the US and UK. There were initially 500 million shares on offer, but the upsize option was exercised to satisfy the strong demand, bringing the total number of shares on offer to 600 million.
Hony is 34.5% owned by Legend Holding, a Chinese investment company.
CSPC announced first-quarter earnings on May 23, reporting a 19.3% rise in net profit to HK$261 million ($27.9 million) for the first three months of this year, compared with HK$218.8 million during the first quarter of 2013.
Revenues meanwhile totalled HK$2.6 billion in the first quarter, a 1.3% rise over the same period in the previous fiscal year. The company attributes the modest revenue growth to the June 2013 sale of its Mongolian penicillin business, which contributed HK$212 million in the first quarter of 2013.
Hebei-based CSPC Pharma started out as a manufacturer of bulk drugs — mainly penicillin and vitamin C — but has transformed itself into a producer of innovative and branded drugs.
The group recently established an oncology drug division and continues to invest in research and development, with a number of new products awaiting approval before coming on the market. This includes drugs for diabetes, strokes, influenza and cancer.
China’s aging population, increasing urbanisation and higher incomes are creating greater demand for pharmaceutical products, and the government is also playing its part by supporting the development of a medical insurance industry.
As a result, further consolidation is inevitable and this should benefit CSPC, which already has significant market share. The biggest risk facing the company is its exposure to a possible slowdown in China. It attributed a 55% drop in profit for the full year 2013 to weaker growth in China, overcapacity and increasing competition.
