Investors in Hong Kong-listed Sino Biopharma are raising questions about the company's plan to spend HK$6 billion ($770 million) to buy 5% of China Cinda Asset Management and the company's shares have dropped by 20% since the deal was signed this month.
A report in Barron's said the deal to acquire a stake in Cinda, which took on the bad debts of many Chinese banks in the 1990s and was tasked with offloading those debts, "defies logic."
Barron's said Sino Biopharma has "poorly communicated the rationale for the deal" other than to say it offered a "reasonable investment opportunity" and may offer potential benefits from related insurance deals.
Barron's quoted an investor with a "sizeable holding" in Sino Biopharma saying the company may have been pressured to do the deal by "external parties" to help China Cinda, which has seen its own share price fall 18% just this year.
With just HK$5 billion on its books, Barron's reported that some investors feel Sino Biopharma could have used its cash better, especially since its drug pipeline is poor, its current portfolio is "maturing" and the company's move to an R&D focus has not gone as quickly as some would have hoped.
The company is also raising red flags with its corporate governance and risks to current shareholders facing possible dilutions in their holdings if the company decides to raise capital by issuing new stock, according to the report.
A company subsidiary was also accused of bribing doctors in 2013, which also sent the company's shares plummeting, and investors worry because the company's chairman, Tse Ping, stepped down in 2015 and appointed his 22 year-old daughter to replace him.
- here's the report from Barron's