Asia Pacific Pharmaceutical Sells Subsidiary for RMB 175 Million to Strengthen Liquidity

On April 1, Yatai Pharma hit the daily upper limit at the market open and rose by 4.50% by the morning close.

Last night, Yatai Pharma announced that it had signed an equity transfer agreement with Zhejiang Zhongqingda Construction Industry Co., Ltd. (hereinafter referred to as “Zhejiang Zhongqingda”), pursuant to which it will transfer its 100% equity interest in its wholly-owned subsidiary, Shaoxing Xingya Pharmaceutical Co., Ltd. (hereinafter referred to as “Xingya Pharmaceutical”), to Zhejiang Zhongqingda.

According to the announcement, this transaction adopts a debt-assumption acquisition model, whereby the transferee shall pay RMB 126 million to the transferor for 100% of the equity interest in the target company, while simultaneously assuming the target company’s liabilities amounting to RMB 48.73 million owed to Yatai Pharma, resulting in a total payment of RMB 175 million to Yatai Pharma.Upon completion of this transaction, Yatai Pharma will no longer hold equity in Shaoxing Xingya Pharmaceutical Co., Ltd., and is expected to increase the company’s total profit for 2024 by approximately RMB 148 million.

“Selling Subsidiaries to Survive” is essentially about optimizing asset structure and replenishing cash flow, with “fresh capital” being particularly critical for Yatai Pharma, which is currently in dire straits.

According to the announcement, the chemical active pharmaceutical ingredients (APIs) originally produced by the subsidiary, Shaoxing Xingya Pharmaceutical Co., Ltd. (Xingya Pharma), were mainlySupplying active pharmaceutical ingredients (APIs) for its own formulation business,After meeting the company's formulation business needs, the remaining portion is sold externally. However, for a long time, due to the high prices of raw materials required for active pharmaceutical ingredient (API) production, the scale effect has not been realized, resulting in high production costs; therefore, Xingya PharmaceuticalNo active pharmaceutical ingredient (API) production since 2020.。

Therefore, Xingya Pharmaceutical is essentially a stock asset of Yatai Pharma that remains to be revitalized.As of December 31, 2024, Shaoxing Xingya Pharmaceutical Co., Ltd. had total assets of RMB 28.1197 million and net assets of -RMB 21.0977 million; in 2024, it achieved operating revenue of RMB 289,900 and a net profit of -RMB 4.4201 million (the above data have been audited).

In fact, this is not the first time Yatai Pharma has “cut off its arm to survive.”Back in December 2024, Yatai Pharma issued the “Announcement on Termination of Investment Projects Funded by Convertible Bond Proceeds,” halting three major investment projects: Phase I and Phase II of the Modern Pharmaceutical Formulations Project, the R&D Platform Construction Project, and the Marketing Network Construction Project.

As of the announcement date, the unutilized balance of funds raised through the Yatai Convertible Bonds amounted to RMB 689 million. It is proposed that this remaining balance be retained in the dedicated fundraising account and prioritized for use in convertible bond put options, conditional redemption, or maturity redemption.Following the delisting of the convertible bonds, all remaining raised funds were transferred out of the designated account to permanently supplement working capital.

“Yatai Pharma Convertible Bond” will mature on April 2, 2025. The maturity redemption amount is RMB 115 per bond (including tax and the final interest payment). The last trading day is March 28, and the maturity date is April 2.As scheduled, the "Yatai Convertible Bonds" that have not been converted into shares by the market close on April 2 will be subject to mandatory redemption. Upon completion of this redemption, the "Yatai Convertible Bonds" will be delisted from the Shenzhen Stock Exchange.

Asset Optimization and Delisting of Convertible Bonds: Behind the Scenes Lie Yatai Pharma’s Troubled Fate and Urgent Need to Alleviate Performance Pressure

Yatai Pharma, established in 1989 and formerly known as Zhejiang Yatai Pharmaceutical Factory, underwent shareholding reform in 2001 and was officially listed on the Shenzhen Stock Exchange in 2010. The company’s main products are antibiotics and digestive system drugs, supplemented by antiviral, cardiovascular, and antipyretic-analgesic medications, including penicillins, cephalosporins, azithromycin, and roxithromycin.

In 2015, Yatai Pharma acquired a 100% equity stake in Shanghai New Summit for RMB 900 million, subsequently entering a period of CRO dividends and achieving rapid performance growth. However, Shanghai New Summit experienced a major scandal, with investigations revealing three consecutive years of financial fraud. As a result, Yatai Pharma became embroiled in debt and legal disputes, reporting a net loss of RMB 1.921 billion in 2019.

In 2021, Fubon Group and its wholly-owned subsidiary, Shanghai Hangui Investment Management Co., Ltd. (“Hangui Investment”), acquired 57.67 million shares of Yatai Pharma through judicial auction. In January 2022, Fubon Group acquired 39 million shares of Yatai Pharma held by Bank of Ningbo through a negotiated transfer. In April of the same year, Fubon Group became the controlling shareholder and took control of Yatai Pharma. From 2021 to 2023, Yatai Pharma recorded net losses for three consecutive years, yet its operational trajectory continued to improve.

Yatai Pharma’s Net Profit Source: China Times, Cninfo

On April 25, Yatai Pharma will disclose its 2024 annual report. In the previous earnings forecast, it was estimated thatNet profit attributable to shareholders of the parent company is expected to turn a loss into a profit in 2024, with an estimated profit range of RMB 25 million to RMB 37 million, compared to a loss of RMB 11.88 million in the same period last year.The company expects its operating revenue to range from RMB 400 million to RMB 410 million, representing a decrease from RMB 421 million in the same period last year.Meanwhile, the net profit after deducting non-recurring gains and losses is estimated to be a loss of RMB 28 million to RMB 40 million, compared with a loss of RMB 68.94 million in the same period last year.

Turning to the transferee in this transaction, Zhejiang Zhongqingda—a national high-tech enterprise from Shaoxing, Zhejiang. It covers an area of more than 500 mu, with a building area of nearly 200,000 square meters. The company achieves annual industrial sales of RMB 3 billion, has an annual TUS construction capacity of over 500,000 square meters, and generates professional construction output value of RMB 2 billion.

According to reports, Zhejiang Zhongqingda leverages Tsinghua University’s TUS Building Science System as its technical foundation and employs Building Information Modeling (BIM) technology for integrated coordination, addressing challenges in collaborative design, production, procurement, construction, and operation and maintenance. The company has introduced Tsinghua’s “Three-Dimensional Ecological Innovative Architecture” for application in the construction and organic renewal of residential, public, and industrial buildings. Its core business includes EPC (Engineering, Procurement, and Construction) general contracting for green, low-carbon human settlement projects and regional licensing of the TUS Building Science System. By utilizing green building materials and intelligent construction methods, the company is comprehensively building a full industrial chain for green prefabricated buildings, covering new real estate investment, industrial fund investment, construction, and the production of TUS components and parts.

Announcement data shows that Zhejiang Zhongqingda demonstrates a sustainable development state of independent innovation and commercial monetization: As of December 31, 2024, Zhejiang Zhongqingda had total assets of RMB 1.075 billion and net assets of RMB 610 million; in 2024, it achieved operating revenue of RMB 437 million and net profit of RMB 51.96 million (the above data has been audited).

What the transferee requires depends on what the target company possesses.

As of the date of this announcement, Shaoxing Xingya Pharmaceutical Co., Ltd. holds the state-owned construction land use rights for two plots located in the Hai Tu Jiu Yi Qiu area of Keqiao District, Shaoxing City (hereinafter referred to as the “Target Real Estate”). The land is designated for industrial use, with land use right areas of 40,562 m² and 20,287 m², respectively. The Target Real Estate is free from any mortgages or other encumbrances.

Meanwhile, upon the completion of this equity transfer,Yatai Pharma will take over all existing employees of Xingya Pharmaceutical,Existing employee labor relationships will be transferred to Yatai Pharma or its designated affiliates. All compensation, indemnities, and outstanding remuneration arising from the termination of labor contracts shall be borne by Yatai Pharma.

For Yatai Pharma, despite the “amputation,” it must still safeguard its core resources.—The Zhejiang Provincial Medical Products Administration-issued license held by Xingya PharmaceuticalDrug Registration Approvals: Roxithromycin, Azithromycin, Esomeprazole Sodium, Tigecycline, and Entecavir.

The announcement clearly states that,The transaction price does not reflect the value of such approvals, which shall be transferred and registered under Yatai Pharma or its designated entity in accordance with this Agreement.Furthermore, prior to the application for change of the approval document holder, Zhejiang Zhongqingda and Xingya Pharmaceutical shall not produce any drugs under such approvals, and shall cooperate with Shaoxing Xingya Pharmaceutical Co., Ltd. to maintain the aforementioned approvals in good standing for a period of five years from the completion of the change in the target equity.

It is reported that the equity transfer payment will be made in two installments: RMB 30 million shall be paid on the date of signing the agreement, and the remaining RMB 96.27 million for equity transfer and debt repayment shall be paid no later than June 25, 2025.