Shanghai Fosun raised HKD3.966 billion from new shares issued

Learn why its HK listing is credit positive for Fosun International.

Last Wednesday, Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (Fosun Pharma, unrated) announced that it had raised HKD3.966 billion ($512 million) by issuing 336 million new shares (H Shares) on the Hong Kong Stock Exchange.

Moody's said that Fosun Pharma’s H share placement is credit positive for parent Fosun International Limited (Fosun, Ba3 negative) because although it will cut its interest in the subsidiary to 40.97% from 48.20%, the transaction is expected to improve Fosun’s leverage and liquidity positions and enhance its earnings stability.

Here's more from Moody's:

Fosun’s liquidity and leverage have been under negative pressure following the company’s debt-funded growth strategy in recent years. On a pro forma basis, we estimate that Fosun’s ratio of consolidated debt to book capitalization will improve to below 50% by the end of 2012 versus 53.4% at the end of 2011.

In addition, Fosun’s consolidated cash balance post-placement would increase by 40% to RMB15.0 billion from RMB10.9 billion as of June 2012. A strengthened Fosun Pharma will help Fosun protect its earnings in an economically challenging environment.

Fosun Pharma is one of China’s leading pharmaceutical manufacturing and distribution companies and a bright spot within Fosun’s portfolio of companies. While the earnings of Fosun’s other businesses, such as steel and mining, have been volatile, Fosun Pharma’s earnings have been growing steadily. Between 2008 and 2011, Fosun Pharma’s sales maintained a compound annual growth rate of approximately 20% and its average gross profit margin was more than 30%.

Both measurements are substantially higher than the group’s consolidated average gross margin during the same period. In the first half of 2012, Fosun Pharma’s contribution to Fosun’s consolidated revenue was 13.2%, but its after-tax profit contribution was 22.5%, excluding investment gains at the parent level. 

Fosun Pharma plans to spend approximately half of the proceeds from the share placement on acquisitions and consolidation in the areas of pharmaceutical manufacturing, distribution, and other healthcare services and diagnostic products.

Shanghai-based Fosun is one of China’s largest private conglomerates and engages in four core businesses segments: property, steel, mining, and pharmaceutical manufacturing and distribution.

Fosun also carries a large investment portfolio of private-equity investments and public investments in both domestic and overseas equity markets.