Fosun-controlled Gland Pharma’s IPO sails through on final day
Photo Credit: VCCircle

The initial public offering of drugmaker Gland Pharma Ltd, which is majority owned by China’s Shanghai Fosun Pharmaceutical Group, managed to sail through on the final day of bidding on Wednesday thanks to demand from institutional investors.

The public offering of nearly 30.24 million shares, excluding the anchor portion, received bids for about 62.15 million shares. The book was subscribed 2.05 times at the end of day three, stock exchange data showed.

The quota of shares reserved for institutional investors was covered about 6.4 times.

However, the issue failed to attract interest from retail investors and wealthy individuals. The quota of shares reserved for retail investors was covered nearly 24% while non-institutional investors comprising corporate houses and high-net-worth individuals (HNIs) placed orders for only 51% of the shares reserved for them.

HNIs typically bid on the final day of a public offering to keep their IPO financing costs at a minimum. They borrow short-term capital from various avenues, barring banks, to fund their IPO applications and deploy only a small fraction of their own capital—called margin money—upfront.

However, negative sentiment – regarding Chinese backing – surrounding the company’s public offering likely prompted retail investors and HNIs to stick to the side-lines.

Gland Pharma is the first Indian company controlled by a Chinese firm to float an IPO, which coincides with geopolitical tensions between India and China due to a border stand-off.

The issue turned deadly in June this year when 20 Indian soldiers died, souring the ties between two neighbouring countries. The Indian government blocked many Chinese apps, increased scrutiny of Chinese investments in India and restricted imports originating from China.

Besides the border standoff issue, investors anticipate a glut of Gland Pharma shares in the market post listing that may put downward pressure on the company’s share price.

The Enforcement Directorate (ED) intends to sell Gland Pharma shares that were owned by Ramalinga Raju, the former chairman and CEO of Satyam Computers, renamed to Tech Mahindra Ltd after being acquired by Mahindra & Mahindra.

Ahead of the IPO, the ED had directed Raju’s family to transfer 3.78% stake owned by them to an escrow account under the agency’s supervision. The ED plans to liquidate the stake post listing.

The IPO was covered just 4% at the end of the first day on Monday. It neared the one-fourth mark on the second day on Tuesday.

Ahead of the IPO, the company raised Rs 1,943.86 crore ($262.68 million) from anchor investors led by Singapore sovereign wealth fund GIC.

Hyderabad-based Gland Pharma was seeking Rs 24,492 crore ($3.3 billion) in equity valuation through the share sale.

The total size of the IPO is about Rs 6,480 crore. 

Gland Pharma was incorporated in March 1978. It mainly made liquid parenterals before expanding into other areas of the injectable 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.

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.

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.

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