Shanghai Fosun Pharmaceutical

Fosun Pharmaceutical begins taking IPO orders from big investors

Shanghai pharmaceutical firm starts taking orders for much-delayed listing that is pitched as inexpensive and closely watched by market

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 16 October, 2012, 4:03am

Shanghai Fosun Pharmaceutical will start taking orders from institutional investors today in a bid to raise up to US$593 million through a much-delayed initial public offering.

The company has secured additional subscriptions from cornerstone investors, people familiar with the deal said yesterday.

The listing of the Shanghai-based maker of diagnostic equipment and medical instruments in Hong Kong is being closely monitored by the market, as the deal is set to be an important benchmark for upcoming share offerings amid a drought of new share sales in the city - the world's top listing venue for the past three years.

Fosun, which is already listed in Shanghai, is pricing the shares at an indicative range of HK$11.80 to HK$13.68, translating into a price-earnings ratio of 12.1 to 14 times next year's earnings, according to a banker involved in the listing.

Underwriters are pitching the deal as an "inexpensive" play to ride on the mainland's rising disposable income and ageing population.

Fosun's 32.1 per cent stake in Hong Kong-listed Sinopharm Group, the nation's largest distributor of pharmaceutical and health-care products, is valued at more than US$2.6 billion. That means the market value of the shares it owns in Sinopharm accounts for nearly 75 per cent of Fosun's US$3.5 billion market capitalisation.

To prevent a failed launch, Prudential Financial of the United States and the International Financial Corp, an investment arm of the World Bank, were asked to raise their purchases to a combined US$75 million, up from US$50 million in the initial proposal.

"Fosun's discount to its market peers reflects caution over its overly aggressive mergers and acquisitions strategy to boost the top line and gain market share, which has sent the company's valuation to the lower end," said an investor who asked not to be named because the transaction is private.

"Expanding sales via M&A deals has always been a big uncertainty, a wild card for the firm's executives and stakeholders, as such deals entail a high level of complexity and are vulnerable to a cultural clash between the two entities involved."

Pricing and allocation of shares are scheduled for October 24, and trading is due to begin on October 30, according to people involved in the deal.

Fosun, controlled by Guo Guangchang, is poised to use nearly half of the net proceeds for acquisitions and consolidation in the drug-making and distribution channels.

Guo, a well-known investor in the mainland's private equity industry, has established funds with Washington-based Carlyle and Prudential to tap into the country's growth momentum.