Harbin Pharmaceutical Group Plans to Introduce Two New Investors, Yet Still Faces Uncertainty

On the evening of August 12, Harbin Pharmaceutical Co., Ltd. announced that the company's controlling shareholder Harbin Pharmaceutical Group Co., Ltd. ("Harbin Pharmaceutical Group") introduced Chongqing Harper Equity Investment Fund Partnership ("Chongqing Harper") and Tianjin Heima Qihang Investment Management Co., Ltd. ("Heima Qihang") as its new investors through the method of the capital increase and share expansion.

Chongqing Harper and Heima Qihang will jointly invest a total of 1.208 billion yuan into the Harbin Pharmaceutical Group. Specifically, Chongqing Harper subscribed for a total of 436 million yuan of registered capital of Harbin Pharmaceutical Group with cash of 805 million yuan, accounting for 10% of Harbin Pharmaceutical Group's registered capital. Heima Airlines subscribed for 218 million yuan of the newly registered capital of Harbin Pharmaceutical Group with cash of 403 million yuan, accounting for 5%.

After the capital increase is completed, the shareholding ratio of the Harbin SASAC will be reduced from 45% to 38.25%. The Harbin Pharmaceutical Group's board of directors will be increased from the existing five to six. The chairman of Harbin Pharmaceutical Group will be elected by more than half of the company's directors and he will act as the legal representative of the company.

This event will also turn Harbin Pharmaceutical Group from a state-owned holding company into a state-owned shareholding company, which means that the long-standing reform of the Harbin Pharmaceutical Group will be grounded. On the day of the announcement, the stock market reaction was highly positive. On August 12th, the share price of Harbin Pharmaceutical Group rose 5.71%. 

"The core direction of reform is to improve strategic resources, the market-oriented corporate governance structure. It will enable us to respond quickly to the dramatic changes in the market and consolidate our core competitiveness. The pharmaceutical industry is a completely competitive industry. A fully market-oriented enterprise can better match the market, effectively respond to rapid changes, and make strategic layouts and operational decisions,"  said Xu Haiying, general manager of Harbin Pharmaceutical Group.

"The reform of mixed ownership is conducive to attracting talents, establishing a professional talent team and rewarding incentive mechanism. Pharmaceutical companies rely on innovation to maintain continued competitiveness. As innovation investment is high-risk, only a fully market-oriented mechanism can better support innovation investment. We also have taken the pace of international operation. Full marketization can strengthen the communication and cooperation of our international business environment," Xu added.

However, on August 13, Harbin Pharmaceutical announced that the introduction of two investors will trigger a tender offer, and relevant parties need further discussions. They also informed that there existed uncertainties in the implementation of the relevant offer, and there were no specific arrangements for the implementation of the main body and implementation methods.

If the parties concerned fail to reach an agreement on the acquisition, the equity transfer may have significant risks that cannot be further advanced.

It means that the 15-year mixed-ownership reform of Harbin Pharmaceutical encounters uncertainty. And the stock market made reactions. On August 13, the share price of Harbin Pharmaceutical Group slightly declined, indicating the worries of investors.