Legend Holdings, the parent of computer maker Lenovo Group( HK: 1093), has offered to buy a majority stake in Hong Kong-listed China Pharmaceutical Group.
The potential deal marks a rare move for Legend, whose previous investments were mostly in privately held mainland firms where it could cash in through share sales.
The offer also came as the central government on June 1 introduced a law to encourage foreign private equity firms, which are increasingly active in the mainland, to take part in yuan-denominated industry funds.
The relaxation may provide additional funding for homegrown players such as Legend to grow as buyout firms such as Carlyle Group, Warburg Pincus, Blackstone Group and Kohlberg Kravis Roberts are seeking to increase their mainland exposure.
Legend president Liu Chuanzhi said in March his company would seek more co-operation with foreign funds to make joint investments.
Legend controls three investment units: Legend Capital that invests in information technology, Raycom Real Estate Development in property, and Hony Capital in other industries with foreign partners such as investment bank Goldman Sachs and Singapore's state-owned Temasek Holdings.
Hony's portfolio - worth more than one billion yuan - includes Shandong-based drug firm Simcere Pharmaceutical, which raised US$226.2 million from a listing on the New York Stock Exchange in April.
The glass industry is Hony's main focus. It has invested in Jushi Group, Lanxing Glass and Beijing Glass. China Glass Holdings, in which it bought a stake in 2003, was listed in Hong Kong in 2005.
China Pharmaceutical, the world's largest penicillin bulk manufacturer with a 20 per cent market share, said Legend might buy a 50.93 per cent stake from Shijiazhuang Pharmaceutical Group.
The stake is worth HK$2.15 billion, based on the stock's closing price yesterday.
Shares in the drugmaker rose as much as 12.63 per cent in morning trade but fell back to close with a loss of 4.44 per cent, trimming this year's gain to 154.5 per cent.
The mainland's drug industry, which was battered by government-ordered price cuts last year, saw profits rise 20 per cent this year, said DBS Vickers analyst Gideon Lo.
China Glass tapped the market for HK$207 million in its Hong Kong share offering in June 2005.