Hong Kong (Reuters) -Two people with knowledge of the situation said that China Resources is in early talks with the chairman of Sihuan Pharmaceutical about taking the Hong Kong-listed business private in a deal that would be worth about $3 billion.
Sichuan is interesting to China Resources (Holdings) Co., Ltd, they said, owing to strong development in its medical aesthetics sector after the firm became the only distributor in China for Letybo, a botox treatment developed by South Korea’s Hugel Inc.
The individuals said that China Resources and Che Fengsheng, Sihuan’s chairman and major shareholder, are contemplating offering HK$2.5 per share, the individuals said. That reflects a premium of more than 60 percent over the firm’s average share price over the preceding three months of HK $1.53.
But precisely how much China Resources and Che would each hold if the sale went forward has yet to be resolved, they said.
She holds a 36.2 percent ownership, according to the company’s 2021 annual report. The people, who didn’t want to be named because the companies didn’t say what was said, said that China Resources doesn’t have any shares in Sihuan right now.
Shares of Sihuan jumped as much as 24 percent on Thursday after Reuters revealed the proposal but barely closed 3.5 percent higher.
China Resources refused to comment and Che did not react to a request for comment made through Sihuan.
Sihuan claimed in a statement that “there is no proposal to privatisation the group” but did not directly answer an inquiry about whether Che and China Resources were in discussions to take the firm private.
China Resources and Che plan to ultimately list Sihuan on the mainland to take advantage of greater values there, one of the people said.
The firm, which also includes generics and novel pharmaceuticals divisions, is trading at 12 times trailing profits in Hong Kong. That’s a lot less than the multiples of 89 and 70 for Imeik Technology Development and Bloomage Biotechnology, two medical aesthetics companies listed on the mainland.
Amid growing demand for plastic surgery and treatments like botox, sales for China’s medical aesthetics business nearly tripled to 177 billion yuan ($26 billion) in 2019 compared to 2015 levels, according to iResearch. It expects the market would be valued 312 billion yuan by 2023.
Sihuan’s medical aesthetic sector sales increased by approximately 1,400% last year to 399 million yuan ($59 million), accounting for 12 percent of total revenues. The division is also developing goods such as skin healing gel.
Founded in 1938, China Resources is one of the country’s major state-owned enterprises with activities spanning real estate, healthcare, consumer products, energy and banking. Its subsidiary China Resources Pharmaceutical produces a number of medications in China under well-known names, including “999”, a famous cold cure.
(1 US dollar = 6.7158 Chinese yuan)
