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Fosun-controlled Gland Pharma gets SEBI nod to float IPO
Photo Credit: VCCircle

Gland Pharma Ltd, majority owned by China’s Shanghai Fosun Pharmaceutical Group, has received regulatory nod to go public in what will be the first ever initial share sale by an Indian company that’s controlled by a Chinese firm.

The Securities and Exchange Board of India (SEBI) issued final observations to Gland Pharma’s initial public offering proposal on October 19, according to information made available on the capital markets regulator’s website.

This takes the number of companies to receive regulatory approval for an IPO so far this year to 22. SEBI had cleared 28 IPO proposals last year, 72 in 2018 and 46 in 2017.

Gland Pharma had filed its draft prospectus with SEBI in July this year. The IPO comprises a fresh issue of shares to raise Rs 1,250 crore and a secondary market sale of 34.86 million shares by its shareholders.

The total IPO size is estimated at Rs 6,000 crore, two people aware of the development had told VCCircle previously. At this size, it would likely result in a stake dilution of nearly 28% and value the Hyderabad-based company around Rs 21,500 crore – more than twice the valuation Fosun paid to acquire a majority stake in the generic injectable drugs company previously backed by global private equity giant KKR & Co Inc.

The rise in Gland Pharma’s valuation is in line with growth in its revenue and profit. Gland Pharma’s revenue from operations jumped 62% to Rs 2,633.24 crore for the year through March 2020 from Rs 1,622.9 crore for 2017-18, the year when Fosun took control of the company. Net profit more than doubled to Rs 772.8 crore from Rs 321 crore during this period, the draft IPO prospectus shows.

In 2014, KKR had invested about $200 million to buy a stake of around 38% in Gland Pharma. The PE firm exited its investment in Gland Pharma with 2.8 times returns by selling its stake to Fosun, according to VCCircle estimates.

Fosun was initially looking to buy as much as a 96% stake in Gland Pharma. However, in the deal announced in July 2016 it trimmed the stake to 86% without specifying any reason.

The deal subsequently ran into regulatory hurdles. The Indian government was reluctant to approve Fosun’s plan to acquire 86% of Gland Pharma in light of a border stand-off between India and China, VCCircle reported in July 2017.

Fosun eventually acquired a 74% stake in Gland Pharma in October 2017 for Rs 6,980 crore ($1.09 billion then). The drugmaker’s founders retained the remaining stake.

Incidentally, Gland Pharma’s IPO comes at a time when India and China are engaged in another border stand-off that turned deadly in June when 20 Indian soldiers died. This turned India-China ties sour, prompting New Delhi to block many Chinese apps, increase scrutiny of Chinese investments in India and restrict imports.

Gland Pharma will use Rs 769.5 crore out of its fresh net proceeds to fund incremental working capital requirements, Rs 168 crore for capital expenditure and an undisclosed amount toward general corporate purposes.

Kotak Mahindra Capital Co., Citigroup Global Markets (India), Haitong Securities India and Nomura Financial Advisory and Securities (India) are merchant bankers managing the share sale.

Gland Pharma was incorporated in March 1978. It was mainly engaged in development, manufacturing and marketing of liquid parenterals before expanding into other areas of the injectables value chain, including contract development, technology transfer and manufacturing across a range of drug delivery systems.

It primarily sells its products under business-to-business models with clients based in 60 countries as of March 2020.

The company has seven manufacturing facilities in India, comprising four finished formulation facilities with a total of 22 production lines and three bulk-drug facilities as of March 2020. Its facilities have the capacity to manufacture approximately 755 million units per annum of finished formulations.

*This article has been modified to correct the IPO size and Gland Pharma's financials.

To discuss the business opportunity and the challenges in the healthcare sector, VCCircle is organising the Healthcare Investment Summit 2020—a virtual event—on December 11. Check out the details and register click here https://healthcare.vccevents.com/

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