Mergers & Acquisitions

Shanghai Fosun Pharmaceutical

Will Fosun’s deal go ahead amid the Sino-Indian spat?

Fosun Pharma claims that it is still waiting for approval from Indian authorities, despite reports that the deal is expected to be rejected

PUBLISHED : Tuesday, 01 August, 2017, 7:19pm
UPDATED : Tuesday, 01 August, 2017, 10:34pm

As bilateral tensions between China and India escalate, the biggest-ever Chinese acquisition bid in India by China’s top private overseas acquirer Fosun could be in jeopardy.

Indian authorities have reportedly stalled a US$1.3 billion deal in which Shanghai Fosun Pharmaceutical, the Shanghai and Hong Kong dual-listed drugmaker controlled by Fosun International, is seeking to take over Indian drugmaker Gland Pharma.

The Times of India on Tuesday cited top Indian officials as saying the rejection was made due to “genuine concern” over proprietary technology developed by an Indian company being turned over to a Chinese pharma major.

Bloomberg also reported quoting unnamed sources familiar with the matter, that India was poised to reject the deal, scuppering the biggest-ever Chinese acquisition in the country.

Fosun Pharma has so far maintained that it is still waiting for approval for the deal.

“The acquisition obtained prior approval from relevant PRC (Chinese) authorities, and is pending review and approval from the Cabinet Committee on Economic Affairs (CCEA) of India. Gland Pharma Limited has not received notice on the results of this review,” the company said in a reply to the South China Morning Post.

Media reports said the decision was made by the CCEA, which is chaired by Prime Minister Narendra Modi, even though Fosun Pharma and Gland Pharma hadn’t been formally notified.

China’s Fosun inks US$1.3 billion deal for Indian pharma company

The possible rejection could heighten the Sino-Indian flare up over territory and trade, to expand into the investment sector.

India has lodged 12 anti-dumping cases against Chinese imports in the first half of this year, more than the 11 cases that the US is pursuing against China, according to the Ministry of Commerce in Beijing.

India exported about US$9 billion worth of products to China last year, but imported US$60 billion, generating a trade deficit of US$51.7 billion, according to Indian government data.

Shan Saeed, chief economist with IQI Global, a Malaysia-based real estate brokerage said Fosun’s acquisition was doomed to fail, when “Modi is trying to create border dispute with China and Pakistani to show his strength, while the geopolitical risk is getting bigger as India trying to test China’s patience”.

“Trade protectionism is coming from India and anything from China is not being welcomed. Modi has already made up his mind in blocking Chinese enterprises entering into the Indian market,” he said.

Fosun Pharma, backed by Chinese billionaire Guo Guangchang, agreed in July last year to acquire control of Gland Pharma from an investor group including KKR & Co.

Modi has already made up his mind in blocking Chinese enterprises entering into the Indian market
Shan Saeed, IQI Global

The acquisition would have bolstered its capability in technology used for injectable formulations, and help expand its manufacturing network in India.

Other Chinese companies that have been investing in India include Alibaba Group, Tencent Holdings and Xiaomi Corp.

Alibaba’s finance unit is on the board of Paytm, India’s largest digital payments start-up, and Tencent owns an interest in Flipkart. Xiaomi, which has already invested US$500 million in the country, is planning a similar size investment over the next three to five years.

Indians warm to Xiaomi, Vivo, Oppo, pushing Chinese brands to 51 per cent of market

The Times of India also reported that Gland Pharma had a lead in injectables, an area where Chinese firms lag Indian pharma companies.

It also said that Gland Pharma had pioneered Heparin technology in India, and is a world leader in the Glycosaminoglycans range of molecules, .

Fosun’s likely setback highlights the difficulties faced by China’s once-prolific acquirers, who are facing mounting pressure at home and abroad.

HNA Group recently scrapped the purchase of an in-flight entertainment provider, while Dalian Wanda Group agreed to sell most of its hotels and tourism-related assets including theme parks amid increased scrutiny from regulators.

Chinese drugmakers like Fosun Pharma have been aggressively seeking deals that will help them access the US, the world’s biggest pharmaceutical market.

China’s Fosun Pharma eyes expansion in European and US markets

Valeant Pharmaceuticals International sold its Dendreon Pharmaceuticals unit to Chinese conglomerate Sanpower Group this year for US$820 million. In June, Humanwell Healthcare Group, a Chinese maker of anesthetics and contraceptives, is part of a consortium that agreed to buy US-based RiteDose for about US$605 million.

According to Fosun Pharma’s recent July 27 filing to the Hong Kong stock exchange, as the Gland Pharma acquisition is still subject to the review and approval of India’s CCEA, it has further extended the deal’s termination date to September 26.

Fosun Pharma closed trading 1.1 per cent lower in Shanghai to 28.82 yuan, and 1.6 per cent lower in Hong Kong HK$28.15.