A saleswoman places masks on the counter at a Shanghai pharmacy. Shanghai Pharmaceuticals plans to raise HK$17.3 billion through H shares. Liu Jin / AFP

Pfizer, Temasek among main buyers of new share issue

Shanghai Pharmaceuticals, the second largest drug distributor on the mainland, plans to raise HK$17.3 billion from selling new shares in Hong Kong to firms including Temasek Holdings Pte and Pfizer Inc, the company said at a press briefing Thursday.

The company, which is also the mainland's third biggest drug manufacturer, plans to offer a total of 662,214,000 H shares, priced in the range of HK$21.8 to HK$26 per share. The public offering will commence today.

Shanghai Pharmaceuticals will use 30 percent of the proceeds from its Hong Kong IPO to buy other firms and set aside 40 percent to boost its distribution network.

Its Hong Kong offering attracted four cornerstone investors committing a total of HK$4.27 billion. They include Pfizer, the world's largest pharmaceutical company, Temasek, the Singapore sovereign fund, Malaysian financial investor Guoco and Bank of China. Pfizer's investment marked its debut as a cornerstone investor in Asia.

If it goes as planned, the IPO will be the largest among Pharmaceutical and Healthcare companies in Asia in five years.

According to its offering document, the company will use 40 percent of the proceeds to strengthen its distribution network, primarily focusing on eastern China, northern China and southern China, which are the company's strongholds. Besides, 30 percent of new capital will be tagged for acquisitions of drug companies both domestically and internationally.

"The pharmaceutical industry in China shows a very low level of concentration. We hope to become a consolidator in the industry, focusing on acquisition in drug manufacturing area in the next three years," said Lv Mingfang, executive director and chairman of the drug maker.

Shanghai Pharmaceuticals acquired CITIC Pharm in 2010, in a bid to strengthen its distribution network.

The company expects its profit attributable to shareholders this year to be no less than 2.1 billion yuan. Net profit for 2010 was 1.78 billion yuan.

In March, the National Development and Reform Commission, the country's top economic planner, announced price cuts of 162 basic pharmaceutical products, raising concerns among analysts that the action would pose downside risks to drug makers.

Commenting on the measure's impact, Xu Guoxiong, executive director at Shanghai Pharmaceuticals, said the company only had four products whose prices need to be adjusted accordingly, implying limited shocks.

"We will further improve our product mix, focusing on products with higher profit margin," said Xu.

Meanwhile, raw material cost rises have accelerated since last year, said Lv.

"Through measures like centralized procurement, we hope to combat the impact of rising costs," he said, adding that meanwhile, prices of Chinese herb medicines now stand at similar levels as last year.

China Daily

(HK Edition 05/06/2011 page3)