Tag: Finance

Series F-1: Fosun’s Acquisition of Club Méditerranée (3)

Calendar Year 2014: Bidding War

Court decision – reject challenge

In early April 2014, Ardian said they (Ardian + Fosun) won’t raise Club Med offer, several weeks before the court decision.

On April 29, 2014, the Paris court rejected a shareholders challenge to a bid by China’s Fosun International and French private equity firm Ardian (previously Axa private equity) for holiday operator Club Med.

Another buyer – Andrea Bonomi, €21

Two weeks later, another buyer was increasing his stake.

It was reported on May 16, 2014 that Strategic Holdings, which is led by Italian businessman Andrea Bonomi (Managing Principal and Founder of Investindustrial, a private equity firm), owned 8.3 pct of Club Med’s capital at Thursday’s market close and was ready to further increase its stake. That stake stood at 7.2 percent on May 12. “Andrea Bonomi is hoping to have constructive talks for the benefit of all shareholders and the company. He is a long term shareholder. Assuming the offer does not go through then they would be one of the biggest shareholders and then they would like to engage on a constructive basis,” the spokesman for Strategic Holdings said.

In May, the French market regulator AMF issued what is known as a put-up- or-shut-up order, giving Mr. Bonomi until Monday (June 30) evening to either make an unconditional offer or drop his bid for at least six months. It also agreed to delay the closing of the Fosun-Ardian deal, giving Mr. Bonomi time to examine Club Med’s books and decide on his move.

Then in June 30, 2014, the new consortium (Global Resorts) made an offer at Euro 21 per share, valuing Club Med at ~790 million euros, or $1.1 billion.

Meanwhile, Club Med opened its third Chinese resort in June, on Dong’ao Island, near Macau.

Fosun Ardian withdrew

On August 14, 2014, Fosun made an announcement that, following AMF’s issuance of statement of compliance for a competing bid filed by Global Resorts SAS, an Amendment Agreement No. 3 to the Investment Agreement has been entered into among Fosun, Ardian (previously AXA PE) and Top Managers, pursuant to which the parties to the Investment Agreement have decided to withdraw the Tender Offer launched by Gaillon Invest.

Fosun Ardian new offer – €22

French private equity firm Ardian, Chinese conglomerate Fosun International, China’s U-Tour and Portuguese insurer Fidelidade, said on Friday they would offer 22 euros per share for Club Mediterranee , reigniting a battle for control of the French resort operator. The new offer, which values Club Med at 839 million euros(1.08 billion), topped a 21 euro-per-share takeover bid from Global Resorts, controlled by Andrea Bonomi.

Upon completion of the Transaction, assuming that 100% of the Target Shares and OCEANEs are tendered to the Tender Offer, each of Holding Gaillon II (through Gaillon Invest II) and Fidelidade would hold 80% and 20% of the shares and voting rights of Club Med respectively. Where Holding Gaillon II (through Gaillon Invest II) holds 80% of the shares and voting rights of Club Med, assuming that there are no Leveraged Financing Facilities, Fosun, the Management, ACF II and Utour-JD Investors would respectively invest in the form of equity capital and/or shareholders loan (through subscription to ordinary shares, preferred shares, and/or shareholders loans, as the case may be) an amount of approximately: (i) €612 million for Fosun, (ii) €10 million for the Management, (iii) €20 million for ACF II, and (iv) €30 million for Utour-JD Investors. As a result thereof, Fosun, the Management, ACF II, and Utour-JD Investors would respectively own approximately 91%, 1.5%, 3% and 4.5% of the share capital and voting rights of Holding Gaillon II. On the other hand, assuming there are Leveraged Financing Facilities, Fosun, the Management, ACF II and Utour-JD Investors would respectively invest in Holding Gaillon II an amount of approximately: (i) €382 million for Fosun, (ii) €10 million for the Management, (iii) €20 million for ACF II, and (iv) €30 million for Utour-JD Investors. As a result thereof, Fosun, the Management, ACF II, and UtourJD Investors would respectively own approximately 86%, 2%, 5% and 7% of the share capital and voting rights of Holding Gaillon II.

[On a side note, Fosun acquired 80% equity interest in Fidelidade on May 15, 2014]

The bid was cleared by AMF in October.

December

On November 11, 2014, buyers led by Bonomi raised the price to Euro 23, including KKR as a minority investor.

On December 1, 2014, buyers led by Fosun raised the price to Euro 23.5, including Brazilian investor Nelson Tanure, active in the tourism industry, as a 20% investor.

On December 5, 2014, buyers led by Bonomi raised the price to Euro 24.

On December 19, 2014, buyers led by Fosun raised the price to Euro 24.6.

Win by Fosun in Feb, 2015

After rival Italian tycoon Andrea Bonomi dropped out, Fosun was left as the sole bidder. The price offered to Club Med shareholders values the company at €939m (£700m). It’s the longest running bid battle in recent times in France.

Finally, on 12 February 2015, AMF declared that Gaillon Invest II is in a position to hold in concert 33,400,691 shares representing 92.81% of the share capital and at least 91.57% of the voting rights of Club Med.

 

References

[1] https://www.reuters.com/article/club-med-ardian-idUSL6N0N13HQ20140409

[2] https://www.reuters.com/article/club-med-courts/paris-court-rejects-challenge-to-club-med-bid-lawyer-idUSWEB00MC020140429

[3] https://www.bloomberg.com/profile/person/1951383

[4] https://www.reuters.com/article/club-med-idUSWEB00NDR20140516

[5] https://dealbook.nytimes.com/2014/06/30/hostile-bid-for-club-med-threatens-existing-deal/

[6] https://www.bloomberg.com/news/articles/2014-06-30/bonomi-s-club-med-bid-tops-rival-offer-at-21-euros-per-share

[7] https://www.reuters.com/article/club-med-bonomi/newsmaker-italys-bonomi-targets-comeback-with-club-med-bid-idUSL6N0PF2M120140704

[8] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0814/ltn20140814093.pdf

[9] https://www.reuters.com/article/club-med-offer-gaillon-idUSFWN0RC00W20140912

[10] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0912/ltn20140912620.pdf

[11] https://www.publico.pt/2014/05/15/economia/noticia/chineses-da-fosun-oficializam-compra-da-fidelidade-1636125

[12] https://www.reuters.com/article/us-clubmed-m-a-fosun-intl-amf/french-regulator-clears-fosuns-improved-club-med-bid-idUSKCN0I31VV20141014

[13] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/1201/ltn201412012174.pdf

[14] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/1201/ltn201412012174.pdf

[15] https://www.reuters.com/article/us-clubmed-m-a-fosun-intl/chinas-fosun-outbids-italys-bonomi-with-sweeter-club-med-offer-idUSKCN0JE0WL20141201

[16] https://www.reuters.com/article/us-club-med-m-a/italian-tycoon-bonomi-tops-chinese-offer-for-club-med-idUSKCN0JJ1D920141205

[17] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/1219/ltn20141219298.pdf

[18] https://www.wsj.com/articles/fosun-sweetens-club-med-bid-1418979380

[19] https://www.wsj.com/articles/italian-businessman-backs-down-in-bidding-war-for-club-med-1420238279

[20] https://www.bbc.com/news/business-31432322

[21] https://www1.hkexnews.hk/listedco/listconews/sehk/2015/0212/ltn20150212805.pdf

Series F-1: Fosun’s Acquisition of Club Méditerranée (2)

Calendar Year 2013: Tender Offer and Guilin Resort

Per the initial announcement, Fosun cant’ increase its stake over 10% until 2012. In Fosun’s annual report 2012, it says it continued to increase its shareholdings to 9.96% by way of investment in the public market (3,172,430 shares). In addition, following the doubling of the voting rights attached to some of its shares, which took place on July 2, 2012, Fosun holds 15% of the voting rights in Club Méditerranée.

Club Med’s Article 8 of the bylaws stipulates that all fully paid-up shares registered in the name of the same holder for at least two consecutive years carry double voting rights.

First offer – €17

On May 27, 2013, Paris-based Axa Private Equity and Fosun, China’s largest private conglomerate, which already own 19 per cent of the shares, said they would team up with the company’s management to offer €17 a share – a 23 per cent premium to Friday night’s close of €13.85.

They aim to be equal partners in acquiring 50.1 per cent of the shares, on a fully diluted basis. If their offer results in a 95 per cent take-up, they may delist and take Club Med private. After five years they would exit through an initial public offer in Paris with secondary listings in Singapore and Shanghai.

Fosun’s obligation to complete the Transaction is conditional on the completion of the Tender Offer, which in turn is conditional upon Gaillon Invest acquiring more than 50% of the share capital and voting rights of Club Med on a diluted basis following the initial round of the Tender Offer.

Upon completion of the Transaction (provided that 100% of the Target Shares and OCEANEs are tendered to the Tender Offer and assuming an investment amount for the Management of Euro 8 million), each of AXA PE, Fosun and the Management would respectively invest in the form of equity capital and/or shareholders loan (through subscription to ordinary shares, preferred shares, and / or shareholders loans as the case may be) an amount of approximately (i) Euro 153 million for Fosun, (ii) Euro 164 million for AXA PE and (iii) Euro 8 million for the Management. As a result thereof, Fosun, AXA PE and the Management would own respectively 47.6%, 47.6% and 4.7% of the share capital and voting rights of Holding Gaillon. Holding Gaillon will not be a subsidiary of Fosun.

In the event that the Offeror would hold 50.1% of the share capital of Club Méditerranée, the aggregate shareholding of the management (circa. 400 people) would represent an indirect shareholding of circa. 8% in the share capital of the Offeror (including circa. 1.6% of which for Mr. Henri Giscard d’Estaing and Mr. Michel Wolfovski), for a total investment of the management of circa. 8 million euros.

Raising bid price – €17.50

On June 25, 2013, Fosun and AXA raised the price from Euro 17.00 to Euro 17.50 and the offer price per OCEANE from Euro 19.23 to Euro 19.79. Club Med’s board said it would back the deal and several of its top shareholders pledged support after staying mum on the previous offer.

Opposition from minority shareholders

The AMF (French stock market regulator) first approved the deal but then Both ADAM and CIAM filed complaints against the takeover with the AMF regulator, who then in August said it was extending until further notice the period for the bid, which had been due to close on August 30, while the court decisions were pending.

Then in September 2013, the court would hear deal complaints on February 27, 2014 and pronounce a judgment on April 29, 2014.

[On a side note, AXA private equity was spun-off and renamed as Ardian in September 30, 2013]

Expansion in China, Guilin village

Meanwhile, Club Méditerranée opened a second 4 Trident village in Guilin during summer 2013 (with a 5 Trident area) and has announced a third village, this time a resort, on the Island of Dong’Ao for summer 2014.

 

References

[1] https://www1.hkexnews.hk/listedco/listconews/sehk/2013/0417/ltn20130417258.pdf

[2] http://corporate.clubmed/wp-content/uploads/2013/03/2012-Annual-Report_Club-Med_ENG.pdf

[3] https://www.ardian.com/sites/default/files/press/20130527%20PR%20AXA%20PE%20Fosun%20FINAL%20FINAL.pdf

[4] https://www1.hkexnews.hk/listedco/listconews/sehk/2013/0531/ltn20130531027.pdf

[5] https://www.ft.com/content/725b5052-c6a8-11e2-8a36-00144feab7de

[6] https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0414/ltn20140414375.pdf

[7] https://www1.hkexnews.hk/listedco/listconews/sehk/2013/0625/ltn20130625664.pdf

[8] https://www.reuters.com/article/clubmed-offer/update-2-chinese-investor-wins-over-club-med-with-sweetened-bid-idUSL5N0F10B520130625

[9] https://www.lepoint.fr/economie/club-med-l-amf-donne-son-feu-vert-a-l-opa-d-axa-et-du-chinois-fosun-16-07-2013-1705274_28.php

[10] https://www.reuters.com/article/clubmed-buyout/club-med-buyout-extended-after-shareholder-complaints-idUSL6N0G72QY20130806

[11] https://www.ft.com/content/408c4988-feb0-11e2-97dc-00144feabdc0

[12] https://www.ft.com/content/f2c5efa6-2533-11e3-9b22-00144feab7de

[13] https://www.ardian.com/sites/default/files/press/PR%20Ardian%20EN%203009.pdf

[14] http://corporate.clubmed/wp-content/uploads/2014/02/VCONSO-ENG-VDEF.pdf

Series F-1: Fosun’s Acquisition of Club Méditerranée (1)

First Stake in 2010 – 7%

On June 13, 2010, Club Méditerranée and Fosun jointly announced that Fosun has acquired 7.1% of Club Med’s share capital, and has become one of Club Méditerranée’s largest strategic investors [1],[2].

Fosun has acquired from FIPAR International and GLG Partners shares and ORANEs representing approximately 7.1% of the share capital of Club Méditerranée on a fully diluted basis (i.e. assuming the redemption in shares of all the ORANEs issued by Club Méditerranée) [1].

One representative of Fosun will be appointed at the board of directors of Club Méditerranée. If Fosun reaches the 9% threshold in the share capital of Club Méditerranée (on a fully diluted basis), the appointment of a second board member selected by Fosun will be submitted to shareholders’ approval at the next shareholders meeting. One representative of Fosun will sit on each of the strategic committee and the audit committee of Club Méditerranée [1].

Fosun intends, if it reaches a 10% stake in the company (on a fully diluted basis), not to increase such stake beyond the 10% level during the following 24 months (from June 2010), subject to no other shareholder having more (or expressing the intention to have more) than 10% [1].

Strategic partnership – 5 Club Med resorts in China by 2015

Included in the statement is a short description of strategic collaboration – Fosun commits itself to support Club Med’s development strategy with the aim to open five Club Med resorts in China by 2015. Club Med has already identified specific sites for resorts which would be developed with the support of Fosun or its affiliates. Fosun (or its affiliates) will propose additional sites, considering their in depth knowledge of the Chinese property market. On a mid term basis, the parties will cooperate to identify opportunities for the opening of new resorts, through greenfield development or by taking over existing upscale resorts [1].

Club Med has already initiated new projects in China, in particular its first Village, as a ski resort, in Yabuli (the largest Chinese ski station in north-east China), to be opened by the winter season of 2010. Club Med’s goal is to attract 5% to 10% of potential Chinese visitors to 4 and 5-²star vacation resorts by 2015, representing just 0.2% of the total Chinese population. On this base, Club Med could have over 200,000 Chinese customers by 2015 [1].

Stake Increased to 9% in Early November 2010

One thing to note here – Club Med’s fiscal year begins on 1 November and ends on 31 October of the following year. Therefore, when Club Med filed its annual report 2010, it only needed to disclose the Fosun’s stake of 2,247,551 shares (~7.4%) and one board seat (JIANNONG QIAN) [3].

After one year, in Club Med’s annual report 2011, it says – on November 9, 2010, the Fosun Group disclosed that it had surpassed the threshold of 9% of capital and voting rights through the purchase of shares between October 14 and November 8, 2010, thus holding 2,801,569 Club Méditerranée shares (2,940,295 shares as of Oct 31, 2011) [4].

And Fosun has two board seats, adding GUANGCHANG GUO (Fosun’s chairman) to Club Med’s board (13 directors as of Oct 31, 2011, including 2 non-voting directors) [4].

Source: Club Med 2011 Annual Report

The Yabuli village

In 2010, in launching its operations on China, Club Med signed a management and marketing contract for the Yabuli Village and paid €2 million for these exclusive rights. These rights are amortized over the life of the contract [4].

Yabuli Village, opened in 2010 winter season, is 4-Trident village with 284 rooms, 706 beds and a capacity of 80,484 (hotel days). It is Club Med’s ninth village in Asia and its second managed property in this region [4],[5].

 

References

[1] http://corporate.clubmed/wp-content/uploads/2010/06/CP-EN.pdf

[2] https://www.reuters.com/article/us-clubmed-china/chinas-fosun-acquires-7-1-percent-of-club-med-idUSTRE65C1EU20100613

[3] http://corporate.clubmed/wp-content/uploads/2011/02/Rapport_Annuel_2010_EN.pdf

[4] http://corporate.clubmed/wp-content/uploads/2012/02/Annual-report-2011.pdf

[5] http://corporate.clubmed/wp-content/uploads/2010/12/Press-Release-of-Club-Med-Yabuli-Opening.pdf

Series A-1: How biotech companies in China are funded?

 

  1. VC/PE funding

 

VC/PE funds targeting China life science investments are growing fast in recent years. According to ChinaBio, in 2018 those VC/PE funds raised around $43 billion in total and invested  around $17 billion in China life science companies, up 36% from 2017[1],.

 

The amount raised by VC/PE funds quickly ramped up during the past several years, with $10.9 billion in 2015, $20.2 billion in 2016, $39.8 billion in 2017[2].

 

Accordingly, the capital invested soared from $1-1.8 billion annually (2012-2015) to $5.4 billion in 2016, $11.7 billion in 2017 and $17.3 billion in 20182.

 

 

[One thing worth noting – many Chinese life sciences companies included/collected in ChinaBio’ research are not purely biotechnology/biopharma companies. For some VC/PE funds, for the purpose of diversification or due to other reasons, they might invest in areas other than biotechnologies.]

 

  1. IPO and capital markets

 

Similar to more developed countries like US, IPO is the most common choice for biotech companies and the funds behind them. [Another common exit opportunity is M&A, which is less likely for Chines biotech companies due to the less matured industry and capital market]

 

However, historically China’s own capital markets won’t accept most biotech companies because they are in their R&D stage with no products. Listing on China’s A-share has many requirements including reaching certain revenue and profit targets, which is very different from listing on NASDAQ. The lack of exit opportunities also (partially) explains the lack of funding in previous years. With the rise of VC/PE investments in Chinese biotech companies, appropriate exit options are needed/expected.

 

Starting from April 30 2018, Hong Kong Stock Exchange got a much anticipated listing pathway official for pre-revenue biotech companies[3],[4].

 

Five Chinese biotech companies went on HKSE via the new rule in 2018, raising nearly US$2.4 billion – Ascletis Pharma $400 million, BeiGene $903 million, Hua Medicine $114 million, Innovent $485 million, Shanghai Junshi $453 million[5],[6].

 

[The first few biotech companies listed on HKSE using the new rule are those large and “first-tier” startups; I will expect smaller IPOs in the coming years]

 

Another new board “Kechuang”, or tech board by Shanghai Stock Exchange is also going to welcome pre-revenue biotech companies starting in 2019[7]. No such listing has happened yet.

 

The capital market in China for biotech companies is still at an early stage. IPO is only one of the techniques. For example, while Nasdaq-listed biotech firms have raised US$3.5 billion from 32 post-IPO “follow-on” share issuances in the period, none has been recorded in Hong Kong yet[8].

 

  1. Public sector / state funding

 

  • Overall scale

Direct funding sources to innovations in life sciences and biotechnologies from Chinese government was said to be over ¥60 billion over the last 5 years, according to Yuanbin Wu, an officer at China’s Minister of Science and Technology, on a conference in October 2018[9].

 

Another research article published on NEJM in 2014 said China’s public sector R&D expenditure in biomedical was $2 billion in 2012[10].

 

  • Structure

A 2011 paper discussed the structure of state sponsored biotech R&D at that time[11].

NSFC = The National Natural Science Foundation of China 国家自然科学基金委员会

MOST = The Ministry of Science and Technology of the People’s Republic of China

 

There were some consolidations happening, especially for programs within MOST, which are now under one umbrella – National Key R&D Program of China (国家重点研发计划)[12].

 

And in 2018, China planned to merge NSFC under MOST[13].

 

  • NSFC

Direct supporting from NSFC totaled ~¥26 billion in 2018[14], including ¥11.2 billion available in its General Program (with ¥1.8 billion in life sciences and ¥2.5 billion in medical sciences)[15]. NSFC’s major programs are detailed below.

 

2018 National Natural Science Foundation of China (Jan 1, 2018 – Oct 24, 2018)

NSFC program names Total (all disciplines)

(¥, millions)

 Life Sciences

(¥, millions)

 Medical Sciences

(¥, millions)
General Program
面上项目		      11,152.89     1,774.7     2,521.20
Young Scientists Fund

青年科学基金项目

        4,176.44        582.40        886.80
Fund for Less Developed Regions

地区科学基金

        1,103.33        292.60        312.00
Key Program

重点项目

        2,054.42        323.00        352.70
National Science Fund for Distinguished Young Scholars杰出青年基金项目           682.85          87.50          84.00
Joint Research Fund for Overseas Chinese, Hong Kong and Macao Young Scholars海外及港澳学者合作研究基金项目             54.00            9.00            9.72
Excellent Young Scientists Fund

优秀青年基金项目

           520.00          75.40          65.00
Total      19,743.93     3,144.60     4,231.42

 

In terms of acceptance rate, for example, NSFC General Program accepted ~20% of projects across all disciplines in 2018 (specifically, life sciences 24% and medical sciences 17%). A history analysis of the fund’s overall acceptance and support is discussed in this article[16].

 

  • MOST

According to MOST’s 2018 budget, National Key R&D Program of China (国家重点研发计划) receives a budget of ~¥27.7 billion in 2018. Another program under MOST is National Science and Technology Major Project (国家科技重大专项), which receives a budget of ~43.8 million[17]. (both numbers are for all disciplines; allocation for biotech related projects is not available)

 

There are other forms of supports from both central and local governments for biotech companies in China, including tax-cut, low-cost infrastructure, etc.[18]

 

  1. Other corporate involvement

 

While China doesn’t have many big pharma companies that are financially strong, some giants in tech and insurance (Baidu, Tencent, Alibaba, PingAn, etc.) have provided certain funding to areas they are interested, usually involving digitalization, data or AI, such as genomics, diagnostics and telemedicine[19].

[1] http://www.chinabiotoday.com/articles/China-Life-Science-2018

[2] http://www.chinabiotoday.com/custom/ChinaBio_State_of_Life_Science_2019%20-%20Jan%202019%20-%20China%20Showcase%20-%20DIST(1)%20-%20Copy%201.pdf

[3] https://www.scmp.com/comment/insight-opinion/article/2143267/hkexs-new-listing-rules-will-bring-tech-economy-hong-kong

[4] https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Listing-Rules-Contingency/Main-Board-Listing-Rules/Equity-Securities/chapter_18a.pdf?la=en

[5] https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Getting-Started/HKEX-Biotech-Newsletter-Issue-1.pdf

[6] https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/finance/deloitte-cn-mna-medicine-and-biotechnology-industry-driven-by-innovative-drugs-zh-190412.pdf

[7] https://www.spglobal.com/marketintelligence/en/news-insights/trending/amoyKnMDGMXvpAJ-p0aiHA2

[8] https://www.scmp.com/business/investor-relations/ipo-quote-profile/article/3012766/shanghai-tech-board-unlikely

[9] http://www.gov.cn/xinwen/2018-10/29/content_5335500.htm

[10] http://rwjcsp.unc.edu/downloads/news/2014/20140102_NEJM.pdf

[11] https://hal.archives-ouvertes.fr/hal-00592303/document

[12] https://baike.baidu.com/item/%E5%9B%BD%E5%AE%B6%E9%87%8D%E7%82%B9%E7%A0%94%E5%8F%91%E8%AE%A1%E5%88%92/19395314

[13] http://www.nsfc.gov.cn/csc/20340/20289/24107/index.html

[14] http://www.xinhuanet.com/2019-03/27/c_1124287185.htm

[15] http://www.nsfc.gov.cn/nsfc/cen/xmtj/pdf/2018_table.pdf

[16] http://www.nsfc.gov.cn/csc/20345/20348/pdf/2018/201802150.pdf

[17] http://www.most.gov.cn/mostinfo/xinxifenlei/czyjs/201804/P020180413411369061914.pdf

[18] https://www.hsmap.com/static/%E3%80%8A%E4%B8%AD%E5%9B%BD%E7%94%9F%E7%89%A9%E5%8C%BB%E8%8D%AF%E4%BA%A7%E4%B8%9A%E5%8F%91%E5%B1%95%E8%93%9D%E7%9A%AE%E4%B9%A6%E3%80%8B.pdf

[19] https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/discover-more/2018/china-biotech/_jcr_content/mainpar/toplevelgrid_738393885/col2/linklist/link.0452222404.file/bGluay9wYXRoPS9jb250ZW50L2RhbS9hc3NldHMvd20vZ2xvYmFsL2Npby9kb2MvY2hpbmEtYmlvdGVjaC1yZXZvbHV0aW9uLWVuZ2xpc2gtZXgtdXMucGRm/china-biotech-revolution-english-ex-us.pdf

A Roundup of Recent E-commerce IPOs

From Mogujie (NYSE: MOGU) to Ruhan (NASDAQ: RUHN) to Yunji (NASDAQ: YJ), a series of second-tier (in terms of size at least) Chinese e-commerce companies has filed with SEC and raised $66.5 million, $125 million, $121 million respectively (excluding any over-allotment option).

The interests were stirred by (at least) the capital market success of Pinduoduo.

In its IPO, Pinduoduo was valued at $23.8 billion including all outstanding share options, compared with a valuation of $15 billion following a funding round in April, 2018. (Reuters)

users comparison at PDD’s IPO vs. Taobao, JD | Source: Bloomberg, Jiguang

Following the IPO in July last year, Pinduoduo raised another $1,375 million in February at $25 per ADS (IPO priced at $19 for ~$1.6 billion).

However, it seems that only Pinduoduo could maintain a high valuation.

Partially due to a bad timing, Mogu, valued at $3 billion in 2016 and seeking a valuation of $4 billion in early 2018, reduced its target and was priced at the lower end for $1.3 billion. The previous valuation was derived from a merger tho.

Mogu Inc. ended its New York debut at the same price as its initial public offering $14, after dipping as much as 15% during the day. [Caixing]

As of May 17, 2019, Mogu closed at $5.4 per ADS, down more than 61% from the IPO price of $14.

Ruhan, or Ruhhn, slipped 37% below its IPO price on the first day of trading following a $125 million NASDAQ offering. [AVCJ]

As of May 17, 2019, it closed at $4.25 per ADS, down more than 66% from the IPO price of $12.5.

Yunji, debuted this month, has maintained $0.01 above its IPO price of $11 as of May 17, 2019. Yunji’s valuation is more supported by its revenue (EV/revenue multiple is close to 1).

And a roundup of multiples at IPO, using an exchange ratio of 6.8

EV/GMV EV/Revenue
PDD 0.28 10.19
MOGU 0.43 7.06
RUHN 2.34 5.72
YJ 0.56 0.98

 

Hong Kong Biotech IPOs – How Are They Doing

Filing Date Prospectus Date
HKG:1672 Ascletis Pharma Inc 歌礼制药 05/07/2018 7/20/2018
HKG:2552 Hua Medicine 華領醫藥 06/06/2018 8/31/2018
HKG:1801 Innovent Biologics Inc 信達生物 06/28/2018 10/18/2018
HKG:6185 Cansino Biologics Inc 康希諾生物 7/17/2018 3/18/2019
HKG:6160 Beigene Ltd 百濟神州 7/24/2018 7/30/2018
HKG:1877 Shanghai Junshi Biosciences Co Ltd 君實生物 08/06/2018 12/11/2018
HKG:2616 CStone Pharmaceuticals 基石藥業 11/11/2018 2/14/2019

Money Flows: Raise By Bonds And Invest In Growth

Corporate bonds are popular, especially those sold by companies that have strong cash flows like Tencent and Saudi Aramco.

For investors, investments in those bonds are not as volatile as equities.

For corporates, there is no dilution in earnings and they could benefit from growth investments with low cost of capital.

Two recent examples (this week): Tencent and Saudi Aramco.

Tencent has been a very active investor in Chinese and global markets. It is one of the two modern “empires” rooted in China (the other being Alibaba). Some of its global investment include:

Tencent just announced that it has raised $6 billion in a bond sale, including $2 billion in fixed and floating rate five-year notes, $500 million in seven-year notes, $3 billion in 10-year notes and $500 million in 30-year notes, carrying coupons of 3.280 percent, 3.575 percent, 3.975 percent and 4.525 percent on the fixed rate five-year notes, seven-year notes, 10-year notes and 30-year notes.

Tencent has now caught up with Alibaba, who sold $7 billion bond in November 2017. (2018 is a year of turmoil that no big bond sales are possible)

Saudi Aramco, the world’s biggest oil producer, was the world’s most profitable company in 2018 (almost three times as much as Apple).

And Aramco has planned bond sale would raise around $10+ billion and is meeting investors this week around the globe.

Aramco has a crucial role to play in Saudi Arabia’s diversification from oil production. And an important part of the strategy is to invest in technology and other high-growth sectors around the world through Saudi Arabia’s Public Investment Fund (PIF), a major backer ($45 billion over 5 years) of Softbank Vision Fund since 2016.

Essentially, Saudi (and PIF) and Tencent are getting low-cost capital from bond sales and invest in tech. And the risks for bond investors are low, given Aramco’s core assets/cash flows and Tencent’s ubiquitous presence in Chinese economy.

It’s gonna be a good time for startup companies that fit Tencent’s or Saudi’s appetite…

Middlemen’s Hard Time… PBMs

It has been more than a month since the 7 major drug manufacturers’ CEOs testified before the congress on February 26.

One of the “problems” that pharma CEOs complained about was pharmacy benefit managers (PBMs) or the middleman problem.

In a healthcare system involving drugmakers, PBMs, pharmacies, insurers, patients, etc., one of the premises behind CVS’s $70 billion acquisition of Aetna and Cigna’s $54 billion acquisition of Express Scripts might actually make them vulnerable in front of regulators: their bargain power.

CVS Health, Cigna, McKesson, Rite Aid, Walgreens… companies with relatively large exposure between pharmaceutical companies and patients/payers are having a very hard time.

Source: Author, Yahoo Finance

What’s ahead – on March 13, the same committee (Senate Finance Committee) said it has called 5 major PBMs to testify on April 3 (tomorrow…)

    • Cigna
    • CVS
    • Humana
    • OptumRx
    • Prime Therapeutics

They must have been prepared.

Stay stunned.