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Shanghai Fosun Pharmaceutical. Photo: Reuters

Uncertain investors drop Fosun Pharma shares on first day

The company wants to grow by acquisitions but the market thinks it is the wrong strategy

Shares of Shanghai Fosun Pharmaceutical, a generic drug maker, closed 8 per cent below the initial public offer price on the first day of trading, as investors shunned the company's aggressive growth strategy.

The company's business model of growing through acquisitions "could cause the management team to lose focus", said a Hong Kong-based fund manager who runs a US$800 million portfolio.

Fosun Pharma has vowed "to concentrate on drug manufacturing while running a hospital chain simultaneously, which requires very different hands-on management and operating experience", he added.

The stock price in Hong Kong was down as much as 12 per cent before lunch yesterday in a weaker overall market, while its Shanghai-listed shares closed 1.3 per cent lower at 10.19 yuan (HK$12.55) in a firmer market.

Ahead of the IPO, chief executive and chairman Chen Qiyu expressed interest in buying overseas drug manufacturing firms that could immediately boost revenue. This has added to investor uncertainty.

According to its prospectus, Fosun Pharma plans to use nearly half the US$512 million in proceeds from its Hong Kong listing on acquisitions. It slashed the size of its offer from US$1 billion earlier this year.

Battered by poor institutional investor demand for the IPO shares, the bookrunners exercised their discretion to allocate more than 32 million shares earmarked for institutions to retail investors, according to people familiar with the deal.

"The retail portion accounted for 19.5 per cent of the overall offering, up from 10 per cent," Qiao Zhicheng, the firm's chief financial officer, said on Monday.

Dealogic data showed 10 out of 50 IPOs in Hong Kong this year had traded below their offer price on the first day.

This article appeared in the South China Morning Post print edition as: Uncertain investors drop Fosun shares on Day 1
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