Luye Pharma IPO well received on enthusiasm for health care
Drugmaker's public offer 14.8 times covered, boosting HK market's health-care credentials
Drugmaker Luye Pharma Group yesterday closed a well-received US$798 million initial public offering. The offer, which was 14.8 times subscribed, was priced at the top of the indicated range and the deal was heavily subscribed on the first day of marketing.
The deal caught a bounce from markets with favourable PMI data from the mainland this week buoying investors.
Pricing it at HK$5.92 per share was also attractive. This translated into a forward price-earnings multiple of 19.5 times, compared with 25 times for Sihuan Pharmaceutical Holdings Group, or 28 times for CSPC Pharmaceutical Group.
Cornerstone investors pre-bought US$280 million of the deal, tightening supply and stoking demand. These included Value Partners and the US health-care fund Orbimed, which took US$50 million. "They [Orbimed] are a specialist fund that validated the deal," said a banker familiar with the listing.
Hong Kong is also establishing itself as something of a health-care hub, with a batch of new listings in recent years including Phoenix Healthcare, China Pioneer Pharma, Shanghai Pharmaceuticals and China NT Pharma Group. This, said analysts, was helping Hong Kong develop the investor and analyst specialisation that will draw more health-care listings to the city.
"Towards the end of last year there was a slew of China health-care IPOs, so this is another one. Among all the major markets, Hong Kong houses really a fair amount of professional health-care analysts, which helps attract more high quality firms to list here, and we are getting more sophisticated health-care money on the buy side," said an analyst with a US brokerage.
Luye develops proprietary drugs for the treatment of cancer and heart disease, spending 194 million yuan (HK$244 million) on research last year. It has 22 drugs in development, with four undergoing clinical trials for approval in the US.
The issuer delisted from the Singapore Exchange in November 2012. The banker said the firm's principals were unhappy with Luye's share price on that exchange. Hong Kong, which has built a critical mass of listed health-care firms, specialist funds and trading liquidity in the sector, has achieved a better valuation for the firm than was seen in Singapore.
There was a heavy private-equity sell-down in Luye's offering with old shares accounting for a third of the offer, and almost all of that private-equity disposals. Investors typically do not like to invest in listings driven by private-equity sell-downs as they view such listings as aggressively priced, and they worry about the overhang of subsequent shareholder sell-downs. However, this aspect seemed not to have hurt the Luye listing.
Citi, Citic/CLSA and UBS jointly ran the deal. The shares start trading on July 9.
