CR Pharma joins China's IPO wave with $2B offering to fund expansion drive

China Resources Pharmaceutical Group will kick off its initial public offering in Hong Kong in the next few days, hoping to raise up to $2 billion for investment and expansion. 

Known as CR Pharma, the drugmaker--part of the state-owned China Resources Holdings conglomerate--is hoping to sell 1.54 billion shares at between HK$8.45 and HK$10.15, with around 50% of the shares already earmarked for large institutional investors. 

Preparations get underway tomorrow, with an offer price due to be set on October 20. If all goes to plan, trading will start on October 28, according to a report on The Standard website.

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China is an attractive market for pharma companies, thanks to an aging population with greater healthcare needs and rising levels of personal income. But it's highly fragmented at the moment, with thousands of domestic drugmakers serving the market. 

Bigger Chinese drugmakers such as CR Pharma raising cash to change that. They're looking to buy up smaller players, adding to their product portfolios while stripping out redundant costs. Analysts have predicted a wave of consolidation fueled by IPO cash as these larger companies tussle for shares in an increasingly liberalized domestic market.

CR Pharma is already the second-largest domestic pharma company in China, with operations spanning western and traditional Chinese medicine, as well as consumer health and nutritional products. Among its well-recognized brands are its "999" and "Double Crane" medicine ranges. CR Pharma also operates the ninth-largest retail pharmacy chain in the country, which is poised to benefit from Chinese government efforts to shift the balance of power in drug distribution away from hospitals.

A cash injection will also help CR Pharma invest in its product portfolio, and the firm is already casting beyond China's borders for opportunities. For instance, in the summer it signed a deal to re-pack and distribute Pfizer's ($PFE) Nitrostat drug for coronary heart disease within China. That deal extends an earlier agreement with Pfizer for two more of the U.S. pharma group's mature brands--the anticoagulant Fragmin and central nervous system drug Sermion.

The IPO will also help fund new logistics centers and warehouses, accelerate in-house R&D and upgrade corporate systems.

Barring a late-stage change of heart, CR Pharma looks set to be the first among a clutch of Chinese pharmaceutical companies eyeing billion-dollar-plus IPOs in Hong Kong this year. 

Simcere Pharma said in January it hoped to raise around $1 billion via that route, around the same time that Jiangsu Hansoh Pharma and Xiuzheng Pharmaceutical both unveiled $3 billion IPO plans. Last year, 3SBio raised $710 million in 2015 after it delisted from the U.S. Nasdaq.

These pharma groups are all focusing on listings in Hong Kong rather than mainland China. Last year, the Chinese authorities placed a four-month block on IPOs on domestic exchanges after markets crashed, and a lackluster start to 2016 means that Hong Kong remains the favored listing location.

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