MSPEA takes Chinese drug company private

Morgan Stanley’s Asian private equity arm is investing alongside management to delist Singapore-listed Sihuan Pharmaceutical and will hold 15% of the company post-completion.

Morgan Stanley Private Equity Asia (MSPEA) will take Sihuan Pharmaceutical Holdings Group private in a deal that will value the China-based business at S$458 million ($326 million; €222 million), according to a MSPEA spokesman. 

MSPEA's offer – made in consortium with Sihuan's senior management – has received acceptances for approximately 96 percent of the Singapore-listed drug company’s shares. 

The take-private has been made easier by the fact that Sihuan’s management currently holds a 76.6 percent interest in the company. This means the take-private requires roughly S$107 million in investment, of which MSPEA has contributed about S$68.7 million.

Following the delisting, MSPEA will hold convertible bonds in China Pharma, the new holding company, representing 15 percent. The company's management has contributed the remaining $38.3 million and will see its holding in the company increase to 85 percent post-transaction.

Headquartered in Hainan Province, in Southern China, Sihuan is involved in the research, production and sale of pharmaceutical drugs across China, and specialises in cardiocerebral vascular drugs. As of 3 September 2009, the company had a market capitalisation of S$448.85 million.

The consortium’s offer price of S$0.975 per share represents a premium of 36.4 percent over the volume-weighted average prices for the six months before the offer was announced. Sihuan’s shares were trading at S$0.97 at time of press.

Taking Sihuan private will give MSPEA and the company’s management the flexibility to implement strategic or investment changes, MSPEA stated in the offer document. MSPEA also said a competitive environment and uncertainties in the highly regulated Chinese pharmaceutical drug industry made a firm such as Sihuan liable to undue share price volatility. 

The firm said it had no intention of changing Sihuan’s business, redeploying the fixed assets of the company or terminating the employment of its employees. 

MSPEA is making the investment from its third fund, Asia III, which closed on $1.5 billion in October 2007. About one-fifth of the fund had been deployed as of September 2008, the firm said in an interview with PEI Asia at the time.

The Sihuan take-private is expected to complete at the end of this month.