H Fund, a private equity fund led by Legend Holdings and Goldman Sachs, has acquired the sixth-largest Chinese pharmaceutical company, an indication of intensifying industry consolidation in the world's most populous country.

The government of Shijiazhuang city in Hebei Province said on its website yesterday that it had sold its wholly owned Shijiazhuang Pharmaceutical Group (SPG) to a group of investors led by Legend Holdings, parent of Lenovo Group, the largest Chinese computer maker.

It was the second pharmaceutical investment by Legend Holdings and the third-largest pharmaceutical takeover in China in the past year.

"China's pharmaceutical industry has huge potential, but enterprises are quite small and the industry is highly fragmented, so this provides a possibility for the consolidation in the market," said Liu Chuanzhi, chairman of Legend Holdings and a founder of Lenovo Group.

It is estimated that there are over 5,000 pharmaceutical companies in China, but their revenues were just a third larger than those of industry leader Pfizer, and their total profits in 2006 were only about two-thirds of the American pharmaceutical giant.

H Fund has committed 5 billion yuan of investment in SPG and promises to grow the company's sales to 15 billion in five years. H Fund will pay 870 million yuan, 3.57 percent higher than the starting bidding price set by the government. It is a $580-million private equity fund set up by Legend Holdings, Goldman Sachs and the other 24 international and domestic investors.

SPG, which posted sales of over 6 billion yuan last year, also holds a more than 50 percent stake in Hong Kong-listed China Pharmaceutical Group.

In October, the German giant Bayer acquired the over-the-counter drug business of the local firm Top Sun for 1.07 billion yuan, and in April, the State-owned conglomerate China Resources Group announced it would take over the ailing drug giant Sanjiu Group.

Legend Holdings made its first pharmaceutical investment in Nanjing-based Simcere in 2005 through Hony II, an $87-million private fund with investors including Legend Holdings, Goldman Sachs, Sung Hong Kai and Temasek Holdings.