Hony makes partial exit from CSPC Pharma

John Zhao’s firm has sold $570m worth of shares in the Hong Kong-listed company.

Hony Capital, one of China’s largest private equity firms, has completed a partial exit from CSPC Pharmaceutical Group through its subsidiary Joyful Horizon and other affiliated entities, according to a filing with the Hong Kong Stock Exchange.

The total sale is worth about $570 million, the company selling 600 million shares to third-party investors and 105.8 million shares to the company chairman, Dongchen Cai, at HK$6.25 ($0.81; €0.59) per share, the filing said. Media estimated the selling price representing a 7.1 percent discount to the last closing price of HK$6.73.

The share sale represents 11.95 percent of the company’s issued shares, with Hony’s total stake in the business being reduced to 62.26 percent from 74.20 percent.

Hony had acquired China Shijiazhuang Pharmaceutical Group from the State-owned Assets Supervision and Administration Commission of Shijiazhuang municipal government for RMB 870 million ($139 million; €102 million) in 2007, according to earlier media reports.

Since its investment in the company, the firm helped transform the business from a loss-making unit of a state-owned enterprise to one of China’s top three pharmaceutical companies, chairman Cai told delegates at the PEI Value Creation Forum in Beijing in July last year.

He said between 2007 and 2011, Hony helped CSPC grow revenues 19 percent annually and add thousands of employees, eventually facilitating a listing in Hong Kong.

The CSPC story was driven by Hony’s understanding of what made the people in the business tick, Private Equity International reported earlier.

Hony incentivised the management team to carry out the transformation by giving them 20 percent equity. “Hony changed not only the fate of the company, but my personal fate,” Cai said at the event.

Private equity firms are increasingly being given access to China’s state-owned enterprises, allowing them to invest in what are often cheaply-priced and inefficient, with substantial room for operational improvement, sources say.

China’s SOEs are also proving to be potential partners for private equity firms in the country, giving them access to potentially large deals.

For example, in April, Hopu Investments agreed to be a minority investor in an agri-business joint venture formed by two agricultural companies, state-owned COFCO Corp and Singapore-listed Noble Group, according to an earlier statement.

The joint venture, called Noble Agri, is 51 percent held by the Hopu consortium led by China-based COFCO, which together invested a reported $1.5 billion in the deal.