① What is the reason for the privatization of traditional Chinese medicine in China? ② What are the benefits for investors? ③ Why are there frequent privatizations in the Hong Kong stock market?
Financial Services Association, Feb. 22 (Editor: Hu Jiarong) Stimulated by favorable privatization news, Chinese Traditional Chinese Medicine (00570.HK) saw a sharp rise when it opened on Thursday. As of press release, it rose 21.87% to HK$4.18.
Note: Trends in Chinese Traditional Chinese Medicine
According to the announcement, Sinopharm Group proposed to privatize Chinese medicines at a cash price of HK$4.6 per share through planned arrangements. Sinopharm's price is a 34.11% premium over the latest closing price of Chinese medicines. The total cost of Sinopharm's privatization proposal is about HK$15.45 billion.
Note: Announcement
As for the Sinopharm Group mentioned above, it is the controlling shareholder of Chinese Traditional Chinese Medicine. According to public information, Sinopharm Group owns about 32.46% of the issued share capital. Meanwhile, Chinese Traditional Chinese Medicine is the group's core platform for the Chinese medicine industry sector, with a market value of over HK$20 billion.
Note: Shareholding ratio of Chinese traditional Chinese medicine
Why was Chinese traditional Chinese medicine privatized?
China Traditional Chinese Medicine stated in its announcement that the trading liquidity of the company's shares continued to be low for a period of time. Over the past 90 trading days, the average daily stock trading volume was about 26.62 million shares, accounting for only a fraction of the company's total shares. Part of the reason for this is the lack of sufficient analytical research on the company by analysts.
Low trading volume may make it difficult for shareholders other than non-controlling shareholders to sell their shares on the open market without adversely affecting share prices.
As a result, China Traditional Chinese Medicine's proposal provides an attractive opportunity for these non-controlling shareholders: they can sell their shares at a premium above the current market price without being able to bear the discount caused by insufficient liquidity. This provided a way for them to monetize their investments while avoiding possible price losses due to poor liquidity.
A number of companies announced privatization a few days ago
In fact, since last year, a number of companies have announced privatization one after another. According to incomplete statistics, a total of nearly 20 Hong Kong stock companies have voluntarily withdrawn from the Hong Kong stock market and announced privatization or have already been delisted, including companies such as Yashili, Dali Foods, and IMAX China.
Industry insiders believe that the tight liquidity of Hong Kong stocks, low valuation, and limited financing functions are the main reasons why related companies have taken the initiative to leave the Hong Kong stock market.
Furthermore, in the face of undervalued stock prices, in the final privatization plan, many companies repurchased and cancelled current tradable shares at a premium higher than the current share price to appease other shareholders.