UPDATE 2-Shanghai Pharma to raise $1.2 bln in HK to fund M&A

* Shanghai Pharmaceuticals to sell 25 percent stake

* Will use proceeds to acquire rivals, sales networks

* Shares suspended since Tuesday pending announcement (Adds more details, background)

By David Lin and Jacqueline Wong

SHANGHAI, Sept 8 (Reuters) - Shanghai Pharmaceuticals Holding Co Ltd (601607.SS), the Chinese partner of Roche Holding AG (ROG.VX), said on Wednesday it plans to raise at least 8 billion yuan ($1.2 billion) through a public share offering in Hong Kong to fund acquisitions.

Shanghai Pharmaceuticals, China's second-biggest drug company by revenue, will sell up to a 25 percent stake in the offering, to be completed by the end of June next year, and would use most of the proceeds to acquire rival companies and sales networks at home and abroad, the company said.

"It's a strategic move that would enable the company to accelerate growth and narrow its gap with bigger rival Sinopharm Group (1099.HK)," said Sun Liang, an analyst with China International Capital Corp.

China is encouraging the formation of major domestic players in the pharmaceutical industry so as to better compete with global giants such as GlaxoSmithKline (GSK.L) and Bristol-Myers Squibb (BMY.N), which have been investing heavily in China.

Shanghai Pharmaceuticals does not currently have a listing in Hong Kong, where Chinese companies can list to gain access to international investors and raise their profile.

The drug firm, controlled by the Shanghai government, acquired two listed companies in March as part of a government-backed restructuring aimed to boost the company's competitiveness.

"We aim to become China's most competitive pharmaceutical group that covers the entire value chain of the industry," Chairman Lu Mingfang told a news conference in Shanghai.

"The share offering is an important strategic step, rather than merely a fundraising activity."

The company plans to sell as many as 667 million Hong Kong-listed H shares at around 17.6 yuan apiece, and will use more than half of the proceeds for acquisitions, Chairman Lu said, adding that the firm will complete selection of underwriters this month.

The company's Shanghai-listed shares, which have risen 12.5 percent in the past month, closed at 20.81 yuan on Monday before they were suspended from trading pending a material announcement. They are due to resume trading on Thursday. ($1=6.79 Yuan) (Writing by Samuel Shen; Editing by Lincoln Feast)