Drugmaker Offers Tonic for Blackstone, Bitter Pill for Investors

Drugmaker YiChang HEC ChangJiang Pharmaceutical Co. Ltd. said on Thursday it has signed on The Blackstone Group LP as a strategic investor, seeking to tap the private equity giant’s medical expertise to expand and improve its operations.

Under the partnership, Blackstone will buy $400 million worth of HEC bonds that can later be converted into as much as 15.5% of HEC’s stock, according to a Hong Kong stock exchange announcement. The conversion price is HK$38 per share ($4.84), roughly equal to the company’s closing price at the end of last week.

HEC’s shares have moved steadily down this week, including a drop of about 8% on Thursday that left them nearly 20% below the conversion price.

“This convertible bond issuance is the first large-scale refinancing since our listing at the end of 2015,” said HEC Chairman Tang Xinfa. “We are pleased to have such an opportunity to engage Blackstone, a leading international investment company, as our long-term strategic investor, providing us confidence in the company’s future development.”

The 17-year-old HEC will use proceeds from the bond to acquire more pharmaceutical products, increase its production capacity and to expand its sales and distribution networks.

“At the same time, the company plans to tap this opportunity to introduce Blackstone as a long-term strategic investor to help the company carry out drug acquisitions, advance its development strategy, operation and management, strengthen international cooperation, and improve corporate governance and investor relations,” HEC said in a statement.

China has become a hotbed for pharmaceutical investment in recent years, as investors bet on the market’s big growth potential. Beijing is in the process of overhauling its health care system from a socialist-era network of hospitals and clinics tied to individual employers to a more Western-style one where such facilities operate independently, as it tries to provide basic care for the nation’s 1.3 billion people.

Both Hong Kong and China have been particularly aggressive about getting more private drug companies to list in their markets, especially those from the hot biotech space.

Earlier this year one such firm, WuXi AppTec Co. Ltd., listed in Shanghai under a newly introduced expedited review process that allows high-growth firms to skip the large line of companies waiting to list. Hong Kong has also eased a longstanding profitability rule to allow money-losing biotech firms to list on its stock market, paving the way for recent initial public offerings by Ascletis Pharma Inc. and BeiGene Ltd.

The latest investment also follows HEC’s own announcement in July that its earnings would more than double in the first half of the year. The company is set to report its interim results on Aug. 24.

Contact reporter Yang Ge (geyang@caixin.com)