Shanghai Fosun Pharmaceutical

Fosun set to tap HK stock market for US$600m

After shelving its plan because of weak market sentiment, the Shanghai company is now ready to sell shares in its pharmaceutical offshoot

PUBLISHED : Saturday, 06 October, 2012, 12:00am
UPDATED : Saturday, 06 October, 2012, 10:06am

Shanghai Fosun Pharmaceutical (Group), controlled by Guo Guangchang, is poised to snap a drought of new listings in Hong Kong.

The maker of traditional Chinese medicine, diagnostic equipment and medical instruments, which is already listed in Shanghai, is seeking to raise up to US$600 million through an initial public share offering.

The company had planned to tap the local market early this year for as much as US$1 billion, but investors became cautious as the global economy weakened.

Guo, the chairman of Fosun Holdings, the country's largest private conglomerate, co-founded the group in 1992 with three fellow graduates of Shanghai's prestigious Fudan University.

Guo built the group into a conglomerate with interests ranging from iron and steel to property to pharmaceuticals, partly thanks to his strong network of Fudan alumni.

His corporate empire, which grew rapidly in the 1990s when Beijing was keen to encourage entrepreneurs, is regarded as an icon of the nation's private economy, which now accounts for more than 60 per cent of the gross domestic product.

In 2007, Guo listed Fosun International on the Hong Kong stock exchange through an offering that raised US$1.48 billion. Fosun Pharmaceutical is a unit of Fosun International.

Guo is well-connected to the government and is a delegate to the National People's Congress. More recently, to further his investment reach, he has tied up with Carlyle Group of the United States to jointly set up a private equity fund to invest in non-listed companies on the mainland.

Last year, the Fortune named him the 27th richest person in mainland China with a personal wealth of US$2.74 billion.

According to a person with direct knowledge, the pending stock offering is stirring investor interest because Fosun Pharmaceutical has the potential for rapid growth as the central government reforms the health-care system to provide affordable and safe health service to the nation's 1.3 billion population.

Based on forecast earnings, the company is trading in Shanghai at about 12 times next year's profit, compared with eight times for the overall market. But the stock looks inexpensive compared with its rivals listed in Hong Kong and Shanghai, which are trading at an average 20 times projected earnings.

Shares of Fosun Pharmaceutical, which closed 1.9 per cent higher at 10.69 yuan (HK$13.08) in Shanghai yesterday, are up 25.2 per cent so far this year, while the overall market has dropped 5.2 per cent. Last year, the stock plummeted 37 per cent while the broader market fell more than 20 per cent.

The company manufactures drugs for liver-related diseases and diabetes. Last year, it posted a 42 per cent gain in revenue to 6.4 billion yuan, while net profit rose 38 per cent to 1.4 billion yuan.

The company warned in its listing prospectus issued on Thursday that in the past a portion of its profits had relied on one-time gains and contributions from associates, which some investors point to as a concern for the company's ability to generate steady income.

A new indicative price range is expected to be set as soon as next Thursday if demand for the Hong Kong offer is strong.

British life insurer Prudential and the International Finance Corp, an investment arm of the World Bank, have agreed to become the company's so-called cornerstone investors. They would take up a combined interest of US$50 million and would not sell any shares within six months, a person familiar with the deal said.