Temasek to buy Shanghai Pharma shares in US$2.2b offering

Shanghai Pharmaceuticals Holding Co., China’s second-largest drugmaker, is raising US$550 million ($674.9 million) from investors including Temasek Holdings and Pfizer Inc. to fund acquisitions in the world’s fastest growing major economy.

 

The sale of shares to the investors, which also include Hong Kong-based Guoco Group and Bank of China Group Investment, is part of Shanghai Pharma’s plans to raise as much as US$2.2 billion in an offering of stock in Hong Kong, according to a term sheet sent to investors today.

 

The funds will enable Shanghai Pharma to buy drug- manufacturing assets in China, where demand for medicines is forecast by IMS Health Inc. to expand at least 25% this year. A soon-to-be-released government plan may push for the nation’s three biggest drug companies to increase their share of the market to 30% to 35% by 2015 from 21% in 2009, the 21st Century Business Herald reported last week.

 

“Shanghai Pharma should benefit from upcoming industry consolidation, since it is already one of the biggest players,” said Pan Lei, an analyst at Beijing-based Guodu Securities Co., who recommends buying the shares. “The company is seen as an attractive investment because its drug distribution business makes it stable.”

 

Singapore state investment firm Temasek will invest $300 million, Guoco Group will invest US$150 million, and Pfizer and Bank of China Group Investment will each buy US$50 million of shares, according to the document. The new shares in the Hong Kong offering will be sold at HK$21.80 ($3.44) to HK$26 apiece.

FUNDING ACQUISITIONS

Shanghai Pharma will use 30% of proceeds from its Hong Kong offering to buy other drug companies and allocate 40% to expand and strengthen its distribution networks, according to the term sheet.

 

Shanghai Pharmaceuticals has suspended trading in Shanghai until after its Hong Kong shares begin trading, scheduled for May 20, according to the term sheet.

 

Temasek spokesman Jeffrey Fang and Pfizer’s Singapore-based spokeswoman Neena Moorjani said they weren’t currently able to comment on the investment. Guoco and Bank of China Investment Group didn’t immediately respond to requests for comment.

 

Shanghai Pharma signed a memorandum of understanding with New York-based Pfizer on April 21 to pursue potential business opportunities in China.