* Luye Pharma one of scores of firms expected to relist in
* Private equity hopes to emulate Sihuan Pharma performance
* Listing values Luye at $3 bln vs $515 mln at the time of
(Writes through with data on China orphan firms, lawyer
By Stephen Aldred
HONG KONG, July 9 Shares in China's Luye Pharma
Group Ltd jumped as much as 18 percent in its Hong
Kong market debut on Wednesday, bolstering prospects for other
so-called "China orphan" firms that had been previously listed
"China orphans" is a phrase used by bankers to refer to
companies that were once listed in New York and Singapore but
were largely neglected, particularly after accounting scandals
in 2011 caused investors to shun most foreign-listed companies
of Chinese origin.
Many are now seeking to make it big back home where
investors are more familiar with their business models and
demand for such firms is more vibrant. They have been inspired
by the successful 2010 relisting of Sihuan Pharmaceutical
Holdings Group Ltd and Luye, like Sihuan, has gotten
off to a roaring start.
Luye's IPO raised $760 million and at the top end of
Wednesday's trading range it had a market value of $3 billion.
That is nearly six times greater than what CDH Investments,
Citic Private Equity Funds Management and New Horizon Capital
Partners paid for it in 2012.
"We know there are a number of privatised companies that are
in various stages of preparing for their relisting," said Paul
Boltz, a partner at law firm Ropes & Gray, which has advised on
a number of deals where Chinese firms were taken private.
"I would expect to see a wave of these relistings over the
next couple of years," he said.
Luye Pharma, whose products include cancer and
cardiovascular drugs, rose as high as HK$6.98 compared with the
IPO price of HK$5.92. It last traded at HK$6.65.
It was the second most actively traded stock on the Hang
Seng Index with some 218 million shares, or 6.5 percent
of outstanding shares, changing hands. The Hang Seng fell 1.5
Chinese firms first set out for Singapore and New York,
attracted by looser listing requirements and the ability to
conduct reverse takeovers, but often failed to attract coverage
from equity analysts. These days, most U.S. investor attention
for Chinese companies is focused on Internet stocks.
There have been 53 actual and planned delistings of China
firms listed in the United States and Singapore including 31
backed by private equity, according to Thomson Reuters data
dating back to 2010. Roughly two-thirds of those private
equity-backed transactions were led by China buyout firms.
For private equity, the rewards can be great.
Morgan Stanley Private Equity Asia (MSPEA) delisted Sihuan
from Singapore in late 2009 at a valuation of around $500
million, before relisting it in Hong Kong a year later with a
market cap of around $3.7 billion, according to a source with
direct knowledge of the matter.
Sihuan's market value has since grown nearly 80 percent to
$6.7 billion, not too far off China's biggest listed drugmaker -
Shanghi Fosun Pharmaceutical Holdings Group Ltd
which has a market cap of $7.2 billion.
MSPEA has not fully exited its investment but expects to
make around eight times its initial investment when it does,
said the source, who declined to be identified as details of the
investment have not been made public.
Luye's shareholders sold $253 million through the offering
while the rest of the proceeds went to the company. For CDH the
successful Luye debut is a welcome relief after the IPO of pork
giant WH Group Ltd was cancelled as mismanaged pricing and other
woes led to weak investor demand.
Investors in both Sihuan and Luye are also buying into
strong growth prospects for China's drug market, although the
sector remains underdeveloped and highly fragmented.
The industry grew at a compounded annual growth rate of 19.3
percent in the five years to 2012 to be worth $69.7 billion and
is expected to grow at a similar pace to reach $166 billion by
2017, according to consultancy firm Espicom.
Luye's net profit in 2013 surged 86 percent to 328 million
yuan ($53 million) on revenue of 2.52 billion yuan.
UBS AG, Citigroup and Citic Securities
International were joint sponsors of the Luye IPO. UBS,
Citigroup and CLSA were joint global co-ordinators and
($1 = 6.1963 Chinese Yuan Renminbi)
(Additional reporting by Denny Thomas; Editing by Edwina Gibbs)