Securities watchdogs reportedly probe Shanghai Pharma deals

Has China's Shanghai Pharmaceuticals run afoul of financial rules? Securities regulators are looking into two acquisitions made after the company went onto Hong Kong's stock exchange last year, 21st Century Business Herald reported, citing an anonymous company source. News of the probe sent Shanghai Pharma's stock reeling: In Hong Kong, the price dropped 24%, and shares fell 10% in Shanghai.

According to the Herald report, the two acquisitions in question are Shanghai Pharma's deal for 70% of Changzhou Kony Pharma and its buyout of Shanghai Asia Pioneer Pharmaceuticals' intangible assets.

The Kony deal was suspended because of disputes over intellectual property and share transfers, but Shanghai Pharma already included Kony's earnings into its first-quarter report, the Herald reported. The Pioneer deal may have involved an undisclosed cash injection and some inappropriate related-party transactions, sources told the Herald.

Shanghai Pharma says officials haven't notified it about any such inquiry. The company also said it had completed the Kony acquisition, contrary to the Herald's report, and properly consolidated first-quarter profits. The Pioneer deal complied with regulations and is "fair and reasonable," the company said in a securities filing (as quoted by Bloomberg).

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