1 Apr 2010 13:09
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA.
THE CONTENTS OF THIS ANNOUNCEMENT DO NOT CONSTITUTE OR FORM PART OF AN OFFER OF OR INVITATION TO SELL OR ISSUE OR ANY SOLICITATION OF ANY OFFER TO PURCHASE OR SUBSCRIBE FOR ANY SECURITIES FOR SALE IN ANY JURISDICTION NOR SHALL THEY (OR ANY PART OF THEM) OR THE FACT OF THEIR DISTRIBUTION FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH, OR ACT AS AN INDUCEMENT TO ENTER INTO, AND CONTRACT OR COMMITMENT TO DO SO.
CATHAY INTERNATIONAL HOLDINGS LTD.
Proposed Flotation and Partial Disposal of
Lansen Pharmaceutical Holdings Company Limited ("Lansen Holdings")
Cathay International Holdings Ltd. (LSE: CTI.L) ("Cathay" or the "Company"), a company investing primarily in the growing pharmaceutical and healthcare sectors in the People's Republic of China ("PRC"), announces today that it is working towards a flotation of Lansen Holdings on the Hong Kong Stock Exchange.
A shareholder circular being issued by the Company and containing details of the Flotation and Partial Disposal of Lansen Holdings Shares by the Company is expected to be posted to Shareholders shortly (the "Circular").
Definitions used in this announcement will have the same meaning as those used in the Circular to be sent to Shareholders, unless the context requires otherwise. Such definitions are set out at the end of this announcement for reference.
Highlights
·; Flotation of Lansen Holdings on the Hong Kong Stock Exchange and associated disposal of approximately 13% of the Company's interest in Lansen Holdings.
·; The Flotation is being carried out as a means of (i) raising new equity to fund the business expansion of the Lansen Group through product development and research, the potential acquisition of pharmaceutical companies in the PRC, the expansion of the Lansen Group raw materials production facilities and the enhancement of its product lines, the expansion and enhancement of the Lansen Group sales and distribution network and for general corporate purposes; (ii) increasing autonomy of that business; and (iii) realising value for the Company.
·; The Board believes that the Flotation should further enhance the business of the Lansen Group by providing the Lansen Group with capital to fund its strategic business development and maintain a relatively high profit growth and creating a discrete, focused investment opportunity for investors, which would also enable the Lansen Group to access the local capital markets if it required to do so in the future.
·; Following completion of the Flotation and the Partial Disposal, it is expected that CIH will indirectly hold approximately 52.46% of Lansen Holdings, assuming that the Over-allocation Option is not exercised, or approximately 50.56% in the event that the Over-allocation Option is exercised in full.
·; The Flotation and Partial Disposal is subject to, inter alia, approval from Shareholders at an SGM to be held on 19 April 2010.
Lee Jin Yi, Chief Executive Officer of Cathay, commented:
"This is a very exciting time for the Lansen Group. The board believes the proposed flotation will create an attractive investment opportunity for those looking to benefit from the impressive growth of the Chinese pharmaceutical market. Cathay International will maintain a significant shareholding in the Lansen Group, and believes that the flotation will be a key step in the growth and expansion of the business."
Enquiries
| Cathay International Holdings Ltd. | + 852 2828 9289 |
| Stephen Hunt / Patrick Sung / Eric Siu | |
| Piper Jaffray Ltd. | +44 (0)20 3142 8700 |
| Jamie Adams / Tom Rider | |
| Brunswick | +44 (0)20 7404 5959 |
| Jon Coles |
Expected Timetable of Principal Events
| Posting date of the Circular to Shareholders | 1 April 2010 |
| Latest time and date for receipt of Forms of Direction | 11.00 am on 16 April 2010 |
| Latest time and date for receipt of Forms of Proxy | 11.00 am on 17 April 2010 |
| Special General Meeting | 11.00 am on 19 April 2010 |
| Admission of Lansen Holdings Shares to the Hong Kong Stock Exchange | on or around 7 May 2010 |
| Dealings in Lansen Holdings Shares commence on the Hong Kong Stock Exchange | on or around 7 May 2010 |
| Payment of cash consideration for the Partial Disposal to the Company | on or around 11 May 2010 |
The dates for the admission of Lansen Holdings Shares to the Hong Kong Stock Exchange, the commencement of dealings in Lansen Holdings Shares and the payment of cash consideration for the Partial Disposal to the Company set out in the expected timetable of principal events above and mentioned throughout the Circular may be adjusted by the Company or as a result of changes to market conditions or to the timetable for the Flotation imposed by the Hong Kong Stock Exchange.
Piper Jaffray Ltd., which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company as financial adviser in connection with the Flotation and Partial Disposal and not for any other person and will not be responsible to any other person for providing the protections afforded to its customers or for providing advice in relation to the Flotation and Partial Disposal or any other transaction or arrangement referred to in the Circular, the contents of the Circular and, if relevant, the accompanying documents or any arrangements referred to therein.
This news release has been issued by Cathay and is the sole responsibility of Cathay.
The distribution of this announcement in certain jurisdictions may be restricted by law and such distribution could result in violation of the laws of such jurisdictions. In particular, this announcement is not for distribution in the United States, Australia, Canada, Japan or South Africa.
The delivery of this announcement shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement nor that the information in it is correct as of any subsequent time.
This announcement may contain forward-looking statements that reflect the Company's current expectations regarding future events, including the clinical development and regulatory clearance of the Company's products, the Company's ability to find partners for the development and commercialisation of its products, the Company's liquidity and results of operations, as well as the Company's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process, the ability of the Company to identify and agree beneficial terms with suitable partners for the commercialisation and/or development of its products, the acceptance of the Company's products by consumers and medical professionals, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.
Introduction
Cathay announces today that it is working towards a flotation of Lansen Holdings on the Hong Kong Stock Exchange.
CIH currently indirectly owns 87.84% of Lansen through its indirect wholly-owned subsidiary, CI Pharma China. The remaining 12.16% of the share capital of Lansen is currently held by Loyal Peace, which is a wholly-owned subsidiary of CI Pharma China. Loyal Peace was established for the purpose of holding an interest in Lansen with a view that such interest is held for the benefit of certain senior members of the Lansen management team. Following completion of the Reorganisation, and immediately prior to the Flotation, it is currently proposed that CIH will indirectly hold 80.39% and Loyal Peace will hold 19.61% of Lansen Holdings. Further details relating to this proposed increase in Loyal Peace's shareholding in Lansen Holdings, which is conditional on, amongst other things, the approval of the Flotation by Shareholders' at the Special General Meeting, are set out below. As described below, upon the Flotation, the entire share capital of Loyal Peace will be transferred to a newly-incorporated company which will hold the shares as trustee of a discretionary trust, the beneficiaries of which will be certain management members and employees of the Lansen Group and their respective family trusts.
The Flotation is being carried out as a means of (i) raising new equity to fund the business expansion of the Lansen Group through product development and research, the potential acquisition of pharmaceutical companies in the PRC, the expansion of the Lansen Group raw materials production facilities and the enhancement of its product lines, the expansion and enhancement of the Lansen Group sales and distribution network and for general corporate purposes; (ii) increasing autonomy of that business; and (iii) realising value for the Company. Pursuant to the Flotation, Lansen Holdings will issue new shares for public subscription and, at the same time, CIH intends to sell approximately 13% of its interest in Lansen Holdings. Following completion of the Reorganisation, the Flotation and the Partial Disposal, it is expected that CIH will indirectly hold approximately 52.46% of Lansen Holdings, assuming that the Over-allocation Option is not exercised, or approximately 50.56% in the event that the Over-allocation Option is exercised in full.
The Flotation and Partial Disposal will constitute a class 1 transaction under the Listing Rules requiring approval from Shareholders. Completion of the Flotation and Partial Disposal is therefore conditional on, amongst other things, the approval of the Shareholders at the forthcoming Special General Meeting to be held on 19 April 2010. The purpose of the Circular is to provide Shareholders with details of the Flotation and Partial Disposal, to explain why the Directors believe that the Flotation and Partial Disposal are in the best interests of the CIH Group and the Shareholders as a whole and to seek the consent of Shareholders to the Flotation and Partial Disposal.
CIH Strategy, background to and reasons for the Flotation and Partial Disposal
CIH was historically a property company operating in the PRC. Since 2000, the management of CIH has been exploring investment opportunities in the PRC which would allow the Company and its investors to share the PRC's economic growth objective and provide the Company with sources of stable income and profits growth potential. A strategic review by the CIH Group in 2002 identified the pharmaceutical and healthcare industries in the PRC as having significant sustainable growth potential.
After three years of market exploration and analysis, the Company decided to begin investment in these sectors with an investment in pharmaceutical research and development. Through its initial investments in 2003 in Botai and Longbai, CIH has assembled a team of professionals with extensive management and technical expertise in the pharmaceutical industry in the PRC and overseas. This professional team gives CIH in-depth knowledge of the Chinese pharmaceutical and healthcare industries, and in assisting with the evaluation of potential investments in the pharmaceutical and healthcare sectors.
The PRC is a fast growing economy, with double-digit real GDP growth per annum between 2003 and 2007. In 2008, the PRC's GDP growth rate was 9 per cent. (PRC's National Bureau of Statistics). Historically, between 2000 and 2004, the PRC's GDP was primarily fuelled by the increase in infrastructure investments and industrial activities. Since 2005, an increasing portion of the PRC's GDP growth has been contributed by domestic personal spending as average personal wealth and the urbanisation ratio of the nation increase. The robust Chinese economy growth has propelled an expansion in healthcare and pharmaceutical businesses, and CIH is increasingly focused on investment in these sectors.
According to Ministry of Health and national statistics, the PRC's total healthcare expenditure reached RMB1,222 billion in 2008, representing 4.1 per cent. of the nation's total GDP. According to OECD statistics, in 2007, the PRC's total health expenditure represented 4.5 per cent. of GDP for that year, which is relatively low as compared to 8.4 per cent. for the United Kingdom, 9.2 per cent. for New Zealand, 10.1 per cent. for Canada, 10.4 per cent. for Germany, 11.0 per cent. for France and 16.0 per cent. for the USA.
According to the PRC's Ministry of Health, the per capita total expenditure on healthcare in the PRC grew from approximately RMB361.9 in 2000 to approximately RMB854.4 in 2007, representing a CAGR of approximately 13.1 per cent., comparable to the CAGR for per capita GDP in the PRC between 2000 and 2007, which was approximately 13.4 per cent. It is expected that per capita healthcare expenditure will continue its double-digit growth, driven by Government investment in healthcare, rising disposable incomes and an aging Chinese population.
Since the investment in Lansen by CIH in 2005, with the benefit of the capital and risk and finance management expertise provided by CIH, Lansen has started to achieve high profits growth. The Board believes that this is sustainable since the rheumatology market in the PRC is a fast-growing market and Lansen has already established a leading position in that market.
CIH's second major investment, effected in the fourth quarter of 2007, is in the Xian Haotian Group, which is involved in the manufacture, marketing and sale of plant extracts used as various active ingredients in food, beverages, cosmetics, dietary supplements and healthcare products.
Lansen has achieved strong revenue and profit growth in the past years through its operations in the rapidly expanding market of prescription medicine for rheumatoid arthritis, and the Board believes that the Flotation should further enhance the business by:
·; providing the Lansen Group with capital to fund its strategic business development and maintain a relatively high profit growth;
·; raising its local profile in order to position it more effectively to: (i) promote its reputation as a medicine manufacturer; (ii) broaden its appeal to potential customers, including hospitals, patients and distributors, in the PRC; (iii) gain access to more potential growth opportunities in the PRC; and (iv) attract, retain and motivate appropriately qualified personnel in the PRC; and
·; creating a discrete, focused investment opportunity for investors, which would also enable the Lansen Group to access the local capital markets if it required to do so in the future.
The Board believes that the proposed Flotation presents the opportunity to create another separately listed business attractive to international investors, whilst at the same time realising value for Shareholders through the Partial Disposal.
Terms of the Flotation and Partial Disposal
CIH currently indirectly owns 87.84% of Lansen through CI Pharma China, and the remaining 12.16% of the share capital of Lansen is held by Loyal Peace, a wholly-owned subsidiary of CI Pharma China. Loyal Peace was established for the purpose of holding an interest in Lansen with a view that such interest is held for the benefit of certain senior members of the Lansen management team. It is proposed that immediately prior to the completion of the Reorganisation and the Flotation, certain Lansen Treasury Shares will be transferred to Loyal Peace, subject to:
·; the achievement of certain performance targets to be evaluated by reference to the audited profits of the Lansen Group for the financial year ended 31 December 2009; and
·; the Flotation being approved by Shareholders at the Special General Meeting and by the Hong Kong Stock Exchange.
The transfer of such Lansen Treasury Shares will result in an increase in Loyal Peace's shareholding in Lansen from 12.16% to 19.13%, and a dilution of CI Pharma China's shareholding in Lansen from 87.84% to 80.87%.
It is further proposed that additional Lansen Treasury Shares are transferred to Loyal Peace to increase Loyal Peace's shareholding in Lansen to 19.61%. It is intended that such shares will be held by Loyal Peace and be used in connection with share incentive arrangements for Lansen Holding's chief financial officer, chief technical officer and some key mid-level management personnel.
Following the transfer of the entire share capital of Lansen to Lansen Holdings in completion of the Reorganisation, and immediately prior to the Flotation, it is therefore currently proposed that CIH will indirectly hold 80.39% and Loyal Peace will hold 19.61% of Lansen Holdings.
Upon the Flotation, it is proposed that the entire share capital of Loyal Peace will be transferred to a newly-incorporated company which will hold the shares as trustee of a discretionary trust, the beneficiaries of which will be certain management members and employees of the Lansen Group and their respective family trusts.
Pursuant to the Flotation, Lansen Holdings will issue 100,000,000 new Lansen Holdings Shares for public subscription, representing 33% of the share capital immediately following the Reorganisation, and 25% of the enlarged share capital immediately following the Flotation (assuming that the Over-allocation Option is not exercised). In the event that the Over-allocation Option is exercised in full, Lansen Holdings will issue an additional 15,000,000 new Lansen Holdings Shares, in aggregate representing not more than 15% of the new Lansen Holdings Shares being offered under the Share Offer. At the same time, CIH intends to sell 31,350,000 Lansen Holdings Shares, representing approximately 13% of its interest in Lansen Holdings, and Loyal Peace intends to sell 10,000,000 Lansen Holdings Shares, representing approximately 17% of its interest in Lansen Holdings. The proposed issue of new shares and offer for sale of existing shares in Lansen Holdings will result in a dilution of CIH's interest in Lansen Holdings. However, CIH intends to maintain a majority ownership of in excess of 50% in Lansen Holdings immediately following the Flotation.
The size of the Flotation, comprising issue of new shares and offer for sale, is targeted to be about US$42.9 million (assuming that the Over-allocation Option is not exercised) or US$47.4 million (assuming that the Over-allocation Option is exercised in full), assuming a Flotation Offer Price of HK$2.36, being the lowest price in the Flotation Offer Price Range. The Flotation will comprise underwritten global institutional and Hong Kong retail offers of Lansen Holdings Shares and the admission of those shares to trading on the Hong Kong Stock Exchange. The Flotation Offer Price will be determined through a "book-building" exercise, and the final determination of the Flotation Offer Price (and accordingly the amount of money to be raised in the Flotation) will be made by the Board in conjunction with the Lansen Group and in consultation with the Sole Bookrunner. If, for any reason, the Flotation Offer Price is not agreed between the Company, the Lansen Group and the Sole Bookrunner, the Flotation will not proceed.
In addition, in connection with the Flotation, the Sole Bookrunner may exercise the Over-allocation Option, under which Lansen Holdings may be required to issue additional Lansen Holdings Shares representing up to 15% of the new issue of Lansen Holdings Shares initially offered in the Share Offer, for the purpose of covering over-allocations in the Placing and effecting transactions with a view to stabilising or maintaining the market price of the Lansen Holdings Shares during a period of 30 days following the Flotation.
It is possible that the Share Offer may not be favourably received by prospective investors or that economic or other factors may adversely affect investor interest, with the result that the Flotation Offer Price could be lower than anticipated. Shareholders should be aware that the Flotation and the Partial Disposal may proceed notwithstanding the fact that the Flotation Offer Price (which will determine the value of the consideration due to the CIH Group in respect of the Partial Disposal) may be set outside the Flotation Offer Price Range but only if to do so is considered by the Board to be reasonable and in the best interests of Shareholders as a whole. The Board is seeking Shareholder approval to proceed with the Flotation and Partial Disposal at such Flotation Offer Price as would satisfy these criteria, which may or may not be within the Flotation Offer Price Range. If the Flotation Offer Price is set below the Flotation Offer Price Range, then the gross cash proceeds of the Partial Disposal received by the Company will be less. The Board will not agree to a Flotation Offer Price that is materially below the lowest price contained in the Flotation Offer Price Range and, in such circumstances, the Flotation and Partial Disposal would not proceed.
The Flotation is subject to; inter alia:
(i) approval by the Hong Kong Stock Exchange and the Lansen Holdings Shares being admitted to trading;
(ii) Shareholder approval at the Special General Meeting; and
(iii) determination of the Flotation Offer Price.
Details of the Lansen Group Management
The Lansen Group has an experienced, committed and stable management team, most of whom have worked together for more than ten years in the pharmaceutical business with management and financial experience in the PRC. It is proposed that at the time of the Flotation the Lansen Holdings board of directors and senior management will comprise:
Name | Function |
Executive Directors | |
Mr. Xu Jun | Chief executive officer |
Mr. Liu Xiao Dong | Senior vice president |
Non-executive directors | |
Mr. Stephen Burnau Hunt | Non-executive director and chairman |
Mr. Lee Jin Yi | Non-executive director |
Mr. Tang Jun | Non-executive director |
Ms. Tao Fang Fang | Non-executive director |
Ms. Yip Pui Ling, Rebecca | Non-executive director |
Mr. Bob Thian | Independent non-executive director and deputy chairman |
Mr. Tang Chiu Ping, Raymond | Independent non-executive director |
Mr. Chan Kee Huen, Michael | Independent non-executive director |
Senior Management | |
Mr. Chan Sheung Chi | Chief financial officer and company secretary |
Mr. Xie Hong Wei | Senior vice president of sales |
Ms. Poon Lei Yung | Senior vice president |
Mr. Liang Yi | Chief technology officer |
Mr. Zhou Rong | Chief logistics officer |
Mr. Zhang Xin Ming | Chief over-the-counter business officer |
Biographies of the proposed Lansen Holdings executives and senior management are set out below.
Lansen Holdings proposed board of directors
Mr. XU Jun, executive director (aged 39)
Mr. XU Jun was appointed as an executive director of Lansen Holdings on 8 January 2010 and is the chief executive officer of Lansen. Mr. Xu is responsible for the overall business strategy and corporate development of the Lansen Group. Mr. Xu has been responsible for the overall management of the Lansen Group since the incorporation of Lansen. Mr. Xu has over 17 years of experience in the pharmaceutical industry through his experience working for the Shenzhen Sanjiu Group since 1992. Prior to joining the Lansen Group, Mr. Xu held various managerial positions in a sales company in the Shenzhen Sanjiu Group, including deputy general manager, from 1997 to 2001. Mr. Xu obtained his Bachelor of Science degree in Economics from the Renmin University of China in 1992 and his Executive Master degree in Business Administration from the China Europe International Business School in 1993.
Mr. LIU Xiao Dong, senior vice president (aged 39)
Mr. Liu Xiao Dong, who joined the Lansen Group at the end of 2001 and was appointed as an executive director of Lansen Holdings on 8 January 2010, is the senior vice president of Lansen in charge of operations management for the Lansen Group. Prior to joining the Lansen Group, Mr. Liu had been deputy head of the finance department and director of the auditing office of a sales company in the Shenzhen Sanjiu Group from 1992 to 2001. He has over 17 years of experience in the pharmaceutical industry through his experience working in the Shenzhen Sanjiu Group. Mr. Liu obtained his Bachelor's degree in Accounting and Economics from Wuhan University in 1992.
Senior management
Mr. XIE Hong Wei, senior vice president of sales (aged 37)
Mr. Xie Hong Wie is the senior vice president of sales of the Lansen Group and general manager of Shenzhen Lansen responsible for the marketing and management of the Lansen Group. Mr. Xie joined the Lansen Group at the end of 2001 and has over 15 years of experience in the pharmaceutical industry. Prior to joining the Lansen Group, Mr. Xie was the manager and sales director of the sales and marketing department of a sales company in the Shenzhen Sanjiu Group from 1994 to 2001. Mr. Xie obtained a Bachelor's degree in Medical Library and Information Science from Norman Bethune University of Medical Science in 1994.
Mr. CHAN Sheung Chi, chief financial officer and company secretary (aged 31)
Mr. Chan Sheung Chi is the chief financial officer and company secretary of Lansen. Mr. Chan joined Lansen on 31 August 2009 and is responsible for finance management and control, accounting, auditing, company secretarial and investor relations of the Lansen Group. Prior to joining the Lansen Group, Mr. Chan worked for Deloitte Touche Tohmatsu in the area of audit services and corporate finance from 2001 to 2009. He is a member of HKICPA. Mr. Chan obtained his Bachelor's degree in Business Administration in accounting and finance from the University of Hong Kong in 2001.
Ms. POON Lei Yung, senior vice president (aged 44)
Ms. Poon Lei Yung is the senior vice president of the Lansen Group. Ms. Poon joined the CIH Group in December 1997 and has worked in the business development and finance departments of the CIH Group and holds several directorships in the subsidiaries of Lansen. Prior to joining the CIH Group, Ms. Poon was the assistant to president at Bessemer Asia Limited, a subsidiary of a U.S. based company, Bessemer Holdings LLC. Ms. Poon has over 18 years of experience with international firms that are specialized in direct investments in China, and has worked in Hong Kong, Australia and China. She obtained her master's degree in Business Administration from the University of South Australia in 2000.
Mr. LIANG Yi, chief technology officer (aged 45)
Mr. Liang Yi is the chief technology officer of the Lansen Group in charge of research and development, and technology. Mr. Liang joined the Lansen Group at the end of 2001 and has over 12 years of experience in the pharmaceutical industry. Prior to joining the Lansen Group, he was employed by a sales company in the Shenzhen Sanjiu Group from 1998 to 2001. Mr. Liang obtained his master's degree in Pharmacy from Kunming Medical University in 1997.
Mr. ZHOU Rong, chief logistics officer (aged 40)
Mr. Zhou Rong is the chief logistics officer of the Lansen Group, director of Ningbo Liwah and the general manager of Liwah Zhiti in charge of logistic related matters of the Lansen Group and operations and management of Liwah Zhiti. Mr. Zhou joined the Lansen Group at the end of 2001 and has over 18 years of experience in the pharmaceutical industry. Prior to joining the Lansen Group, he was employed by a sales company in the Shenzhen Sanjiu Group from 1991 to 2001. Mr. Zhou obtained his Bachelor's Degree in heat, ventilation and air-conditioning engineering from Shenyang Jianzhu Architectural and Civil Engineering University in 1991.
Mr. ZHANG Xin Ming, chief OTC business officer (aged 36)
Mr. Zhang Xin Ming is the Chief OTC business officer of the Lansen Group and deputy general manager of Ningbo Liwah in charge of OTC business of the Lansen Group and operation and management of Ningbo Liwah. Mr. Zhang joined the Lansen Group at the end of 2001 and has over 13 years of experience in the pharmaceutical industry. Prior to joining the Lansen Group, he was the manager of a sales company in the Shenzhen Sanjiu Group from 1996 to 2001. Mr. Zhang obtained his Bachelor's degree in pharmacy from the West China University of Medical Sciences in 1996.
Information on the Lansen Group
Lansen is a rapidly growing pharmaceutical company principally engaged in the development, production and sale of rheumatic specialty prescription western pharmaceuticals in the PRC. Lansen focuses on the therapeutic treatment of rheumatic diseases involving joints, soft tissues and connective tissues, including rheumatic arthritis, osteoarthritis, back pain and soft tissue pain. In 2008, Lansen had a leading market share with approximately 22.8% of sales of disease modifying anti-rheumatic drugs (DMARDs, a category of drugs focussed on slowing the progression of rheumatic diseases as opposed to simply treating inflammation) in the PRC. The CIH Group currently has an 87.84% interest in Lansen and, following completion of the Reorganisation, the Flotation and the Partial Disposal, intends to maintain a majority interest in excess of 50% in Lansen Holdings.
Medical treatment in rheumatology in the PRC has only developed in recent years, and the Board believes that this market will continue to offer higher growth potential than the pharmaceutical industry average in the PRC. In turn, the pharmaceutical industry average in the PRC has outpaced the global pharmaceutical industry average. Prescription drugs for rheumatic diseases marketed and distributed by the Lansen Group, including Lansen's own products, have taken a significant market share.
Lansen is focused on identifying, developing and commercialising products principally in the rheumatic therapeutic areas. It is expected that a pipeline of new rheumatic products will be launched in the next few years.
The Lansen Group has a product development and research team of 33, focused on developing new commercially viable products with an emphasis on prescription western pharmaceuticals for the treatment of rheumatic diseases, and increasing the efficiency and effective production of its existing products. The Lansen Group's product development is complementary to its strategic core and general development, focusing on identifying, developing and commercialising products principally in the rheumatic therapeutic areas. The Lansen Group employs a market-driven approach to select product candidates that are either developed in-house or acquired through co-development with partners, and maintains ongoing collaborations with research institutions, universities and hospitals in the PRC. The Lansen Group does not aim to invent revolutionary new products, but through targeted market research assesses doctors' and patients' needs in light of the prevailing market trend, with a to view establishing a range of products with a broad appeal.
Ningbo Liwah, a subsidiary of Lansen, is engaged in the manufacturing and sale in the PRC of modern Chinese medicine extracts and OTC pharmaceuticals.
Reorganisation of the Lansen Group
In preparation for the Flotation, a corporate reorganisation of the companies comprising the Lansen Group is to be completed. A number of steps in the Reorganisation have already been carried out, to ensure that the structure of the Lansen Group is balanced and efficient.
Lansen Holdings was incorporated as an exempted company with limited liability under the laws of the Cayman Islands on 10 September 2009, and will act as the ultimate holding company of the Lansen Group. Immediately prior to the Flotation, Lansen Holdings will acquire the entire issued share capital of Lansen from CI Pharma China, an indirect wholly-owned subsidiary of CIH, and Loyal Peace (together the immediate holding companies of Lansen), in consideration of the allotment and issue of Lansen Holdings Shares, credited as fully paid, such that the respective interests of CI Pharma China and Loyal Peace in Lansen Holdings will replicate their interests in Lansen immediately prior to completion of the Reorganisation.
Financial information on the Lansen Group
The consolidation schedules that underlie the Company's audited consolidated accounts, prepared under International Financial Reporting Standards, for the financial year ended 31 December 2008 reported a consolidated turnover for the Lansen Group of US$37.1 million and a consolidated profit for the Lansen Group of US$5.1 million. The unaudited accounts of the Lansen Group for the financial year ended 31 December 2009, prepared under International Financial Reporting Standards, reported a consolidated turnover of US$47.9 million and a consolidated profit of US$7.4 million. As at 31 December 2008, Lansen and its subsidiaries had consolidated gross assets and consolidated net assets of US$60.4 million and US$22.7 million respectively. As at 31 December 2009, the consolidated gross assets were US$63.2 million and the consolidated net assets were US$30.0 million.
The information in this paragraph relating to the financial year ended 31 December 2008 has been extracted without material adjustment from the consolidation schedules that underlie the Company's audited consolidated accounts, prepared under International Financial Reporting Standards. Further financial information relating to the Lansen Group is set out in Part VII of the Circular. Shareholders should read the whole of the Circular and should not rely on the summarised financial information set out above.
Effect of the Flotation and Partial Disposal on the CIH Group
Whilst the Partial Disposal is a divestment of part of the Company's most profitable business, it is expected that the Company will continue to hold approximately 52.46% of Lansen Holdings, assuming that the Over-allocation Option is not exercised, or 50.56% in the event that the Over-allocation Option is exercised in full. The Company expects that the effect of the Flotation and Partial Disposal on the CIH Group will be as follows:
§ as a result of the intended new issue of shares by Lansen Holdings in the Flotation, the Company's percentage holding in Lansen Holdings will be diluted and the contribution of Lansen Holdings to the CIH Group will be diluted accordingly;
§ it is expected that such dilutionary effect shall be compensated or overcome in the medium term by an anticipated growth in Lansen Holdings' earnings from its business development funded by the capital raised in the Flotation; and
§ the dilutionary effect should be balanced in the short term by the Company's proposed sale of approximately 13% of its interest in Lansen Holdings, the proceeds of which will provide the CIH Group with a return on the capital investment made in Lansen. However, the amount of sale proceeds received by the Company will depend on the Flotation Offer Price agreed by the Board and the Lansen Group, in consultation with the Sole Bookrunner.
An unaudited pro forma statement of the net assets of the CIH Group as at 30 June 2009 is set out in Part VIII of the Circular. This statement has been prepared for illustrative purposes only to show the effect on the net assets of the CIH Group that the Flotation and Partial Disposal would have had if they had taken place on 30 June 2009. The pro forma statement has been prepared assuming a Flotation Office Price of HK$2.36 (being the lowest price of the Flotation Offer Price Range).
As at 30 June 2009, the unaudited interim results for the six months ended 30 June 2009, prepared in accordance with International Financial Reporting Standards, reported that the CIH Group had consolidated net assets of approximately US$71.0 million. As shown in the pro forma statement of the net assets of the CIH Group set out in Part VIII of the Circular, the illustrative consolidated net assets of the CIH Group as at 30 June 2009, on a pro forma basis and adjusted to reflect the Flotation and Partial Disposal (as if they had taken place at that date), would have been approximately US$110.3 million.
Assuming the Flotation and Partial Disposal had completed by 30 June 2009, it would have had an accretive effect on the CIH Group's earnings.
Shareholders should read the whole of the Circular and should not rely on the summarised financial information set out above.
Use of proceeds of the Flotation and Partial Disposal
The aggregate net proceeds of the Flotation and Partial Disposal, before exercise of the Over-allocation Option and assuming a Flotation Offer Price of HK$2.36 (being the lowest price of the Flotation Offer Price Range), are estimated to be approximately US$35.0 million (in the event that the Over-allocation Option is not exercised) or US$39.4 million (assuming that the Over-allocation Option is exercised in full). The net proceeds of the Share Offer from the issue of Lansen Holdings Shares will be received by Lansen Holdings, and the net proceeds of the Partial Disposal will be received by CIH.
It is proposed that Lansen Holdings will use the net proceeds of the Share Offer, which are estimated to be approximately US$26.2 million (in the event that the Over-allocation Option is not exercised) or US$30.6 million (assuming that the Over-allocation Option is exercised in full), assuming a Flotation Offer Price of HK$2.36, being the lowest price in the Flotation Offer Price Range (i) to fund Lansen's product development and research to develop new products and upgrade existing products with a therapeutic focus on rheumatic treatment, (ii) to fund the potential acquisition of pharmaceutical companies in the PRC, (iii) to fund the expansion of the Lansen Group raw materials production facilities and the enhancement of its product lines, (iv) to fund the expansion and enhancement of the Lansen Group sales and distribution network and (v) for general corporate purposes.
Assuming a Flotation Offer Price of HK$2.36 (being the lowest price in the Flotation Offer Price Range) CIH will receive approximately US$8.8 million (net of expenses) as proceeds of its sale of Lansen Holdings Shares under the Partial Disposal (assuming that it disposes of 31,350,000 Lansen Holdings Shares). It is intended that any proceeds from the Partial Disposal will be retained by the Company for further investment in line with the Company's strategy, and for general corporate purposes. Currently, no specific investments have been identified for utilisation of the proceeds. However, the Company continues to monitor opportunities in the PRC, currently primarily focused in the pharmaceutical and healthcare sectors, for potential further investments which could bring synergies or further complement the Company's existing assets or otherwise to invest in the PRC's growing economy. The Company has therefore not allocated any part of the proceeds for any particular investment or other purposes.
Bye-Law Amendments
The Board is also taking this opportunity to propose certain amendments to the Company's bye-laws to enable the Company to hold treasury shares. The changes introduced in the Bye-Law Amendments are solely to enable the Company to hold shares in treasury and to reflect the requirements relating to treasury shares under the Bermuda Companies Act. Any shares held in treasury could be sold by the Company in the market, without the costs associated with a new issue of shares, or used by the Company in connection with the future grant of shares or share options to directors and employees. This would provide the Company with greater flexibility in managing its share capital.
Definitions
The following definitions apply throughout this announcement unless the context requires otherwise:
| "A Shares" | the A shares of US$0.05 each in the capital of CIH |
| "Bermuda Companies Act" | the Companies Act 1981 of Bermuda (as amended) |
| "Board" or "Directors" | the directors of the Company whose names are set out in the Circular |
| "Botai" | Changchun Botai Medicine and Biological Technology Company Limited, a foreign equity joint venture company based in Changchun, Jilin Province, PRC, an indirect wholly-owned subsidiary of CIH |
| "Bye-Law Amendments" | the amendments to the Company's bye-laws proposed to be approved at the Special General Meeting, as set out in the Notice of SGM in the Circular |
| "CAGR" | compound annual growth rate |
| "Cathay Enterprises" | Cathay International Enterprises Limited, an exempted company incorporated in Bermuda with limited liability under the Bermuda Companies Act, which is the immediate parent undertaking of the Company. Mr. Wu Zhen Tao and members of his family are the beneficiaries of the trust which owns Cathay Enterprises |
| "CIH" or "Company" | Cathay International Holdings Limited an exempted company incorporated in Bermuda with limited liability under the Bermuda Companies Act |
| "CIH Group" | CIH and its subsidiary undertakings (including the Lansen Group following the Flotation and Partial Disposal) |
| "CIH Shares" | the Common Shares and A Shares in issue at the date of the Circular |
| "CI Pharma China" | Cathay International Pharma Manufacture & Distribution (China) Limited, a company incorporated in the British Virgin Islands on 25 February 2005, a wholly owned subsidiary of CI Biotech and Pharma China |
| "Common Shares" | the common shares of US$0.05 each in the capital of CIH |
| "Depository" | Capital IRG Trustees Limited |
| "Depository Interests" or "DIs" | the dematerialised Depository interests in respect of Common Shares issued by the Depository |
| "Dragon Diligent" | Dragon Diligent Holdings Limited, a limited liability company incorporated in the British Virgin Islands, an indirect wholly owned subsidiary of CIH |
| "Flotation" | the proposed flotation of Lansen Holdings on the Hong Kong Stock Exchange and the associated offering of Lansen Holdings Shares and other connected arrangements, as more fully described in this document |
| "Flotation Offer Price" | the price at which Lansen Holdings Shares are allotted and issued in the Flotation |
| "Flotation Offer Price Range" | HK$2.36 to HK$3.94 |
| "GDP" | gross domestic product |
| "Hong Kong Stock Exchange" | The Stock Exchange of Hong Kong Limited |
| "Hotel" | Crowne Plaza Hotel & Suites Shenzhen |
| "Lansen" | Lansen Pharmaceutical Holdings Limited, a limited liability company established in the British Virgin Islands |
| "Lansen Core Business" | the production and sale of rheumatic speciality prescription western pharmaceuticals in the PRC |
| "Lansen Group" | Lansen or, following the Reorganisation, Lansen Holdings, and their subsidiaries and associated companies, including Ningbo Liwah |
| "Lansen Holdings" | Lansen Pharmaceutical Holdings Company Limited, an exempted company incorporated in the Cayman Islands with limited liability on 10 September 2009 |
| "Lansen Holdings Shares" | shares of US$0.01 each in the capital of Lansen Holdings |
| "Lansen Treasury Shares" | existing shares of US$1 each in the capital of Lansen held in treasury by Lansen |
| "Listing Date" | the date on which dealings in the Lansen Holdings Shares first commence on the Hong Kong Stock Exchange |
| "Listing Rules" | the listing rules of the UKLA |
| "Longbai" | Tianjin Longbai Biological Engineering and Technology Company Limited, an equity joint venture company based in Tianjin City, PRC, an indirect wholly-owned subsidiary of CIH |
| "Loyal Peace" | Loyal Peace Enterprises Limited, a limited liability company incorporated in the British Virgin Islands on 28 April 2006 |
| "Ningbo Liwah" | Ningbo Liwah Pharmaceutical Company Limited, a company established under the laws of the PRC on 6 January 1993, an indirectly wholly-owned subsidiary of Lansen |
| "Non-Compete Agreement" | the non-compete agreement to be entered into between CIP and Lansen Holdings |
| "Notice of SGM" | the notice convening the Special General Meeting as set out in the Circular |
| "OECD" | Organisation for Economic Co-operation and Development |
| "Over-allocation Option" | the option to be granted by Lansen Holdings to the Placing Underwriters exerciseable by the Sole Bookrunner pursuant to which Lansen Holdings may be required to issue additional Lansen Holdings Shares to cover over-allocations in the Placing |
| "Partial Disposal" | the proposed sale of approximately 13% of CIH's interest in Lansen Holdings in connection with the Flotation |
| "Placing" | the placing of Lansen Holdings Shares to professional and institutional investors and other private investors including brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities |
| "PRC" | the People's Republic of China |
| "Public Offer" | the public offer of Lansen Holdings Shares open to members of the public in Hong Kong and to institutional and professional investors for cash at the Flotation Offer Price |
| "Reorganisation" | the corporate reorganisation of the Lansen Group carried out in part in 2008 and 2009, and to be completed by the acquisition of Lansen by Lansen Holdings immediately prior to the Flotation |
| "Resolutions" | the resolutions to be proposed at the Special General Meeting as set out in the Notice of SGM |
| "RMB" | Renminbi, the currency of the PRC |
| "Selling Restrictions Agreement" | the agreement dated 22 December 2009 between Lansen Holdings, CI Pharma China, Loyal Peace, Mr. Xu Jun, Mr. Liu Xiao Dong and Mr. Xia Hong Wei in relation to, amongst other things, the selling restrictions applicable to the Lansen Holdings Shares held by CI Pharma China and Loyal Peace as at the Listing Date |
| "Share Offer" | the Public Offer and the Placing |
| "Shareholders" | the holders of the CIH Shares or, as the context may permit, holders of DIs representing CIH Shares |
| "Shenzhen Sanjiu" | Sanjiu Medical and Pharmaceutical Company Limited, a A-share listed company on the Shenzhen Stock Exchange |
| "Shenzhen Sanjiu Group" | Shenzhen Sanjiu and its subsidiaries and associated companies |
| "Sole Bookrunner" | Piper Jaffray Asia Securities Limited, appointed as sole bookrunner in connection with the Flotation |
| "Special General Meeting" or "SGM" | the special general meeting of the Company to be held on 19 April2010, notice of which is set out in the Circular |
| "United Kingdom" or "UK" | the United Kingdom of Great Britain and Northern Ireland |
| "United States" or "US" | the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia |
| "Xian Haotian" | Xian Haotian Bio-Engineering Technology Co. Ltd., a limited liability company established in Xian city, Shaanxi province, PRC, an indirectly wholly-owned subsidiary of the Company |
| "Xian Haotian Group" | Xian Haotian and its subsidiaries and associated companies, including Yangling Haotian |
| "Xian Haotian Management" | Messrs. Zhang Chengwen, Kou Yufeng, Meng Xianglin, Lian Jiang, Hu Honglai and Wang Chunyu, together, the existing senior management of the Xian Haotian Group |
| "Yangling Haotian" | Yangling Haotian Bio-Engineering Technology Co. Ltd, a wholly owned subsidiary of Xian Haotian |
Enquiries
| Cathay International Holdings Ltd. | + 852 2828 9289 |
| Stephen Hunt / Patrick Sung / Eric Siu | |
| Piper Jaffray Ltd. | +44 (0)20 3142 8700 |
| Jamie Adams / Tom Rider | |
| Brunswick | +44 (0)20 7404 5959 |
| Jon Coles |
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