KKR takes 24% stake in China blood banker

In what marks its first foray into the country's health services sector, the private equity firm has agreed to invest $65 million into China Cord Blood Corporation (CCBC), the leading domestic core blood banking operator. KKR will take a 23.8% stake in the New York-listed company on a fully diluted basis and appoint representatives to its board.

"CCBC runs an impressive operation that meets stringent quality standards and provides a critical medical service to its customers," David Liu, CEO of KKR Greater China, said in a statement. "As we continue to build our China portfolio, we are excited to support a company that is dedicated to improving healthcare services and making a positive impact on lives in China."

The private equity firm will support CCBC in executing its growth strategy, helping set up metrics to measure performance and properly incentivize staff as well as advising on balance sheet management, product marketing and potential acquisitions.

This is the sixth investment made by the KKR China Growth Fund, which closed in February 2011 at $1 billion. KKR China Healthcare Investment, a Cayman Islands-incorporated affiliate of the fund, will purchase $65 million in senior unsecured convertible notes issued by CCBC. The notes, which must be redeemed in five years, have a coupon of 7% and a guaranteed 12% return on maturity. The conversion price is $2.838 per share.

Prior to KKR's announcement, CCBC was trading at a 58% deficit to its debut price in December 2009, with a price-to-equity ratio of 10x. It is yet another casualty of the financial irregularities in several US-listed Chinese companies that have cursed them all.

A source familiar with the transaction tells AVCJ that, while KKR "certainly took advantage of a depressed valuation," it was attracted by CCBC's long-term growth prospects and strong management team. There are 60-80 million children born in China each year but core blood is collected in just 1% of cases. Elsewhere in Asia, penetration is 15-20%.

Only eight Chinese provinces and municipalities have issued cord blood collection licenses and CCBC has exclusive rights in three of them, Beijing, Guangdong and Zhejiang, which between them account for 1.9 million births per year.

"It's also a very sticky business," the source adds. "Once a customer chooses to store cord blood with particular service provider, they don't move it elsewhere."

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• Topics
• Greater China
• Expansion
• PIPEs
• Healthcare
• healthcare
• China
• PIPE
• Growth capital
• KKR