By Fineline Cube 
Luye Pharma Group LTD (HKG: 2186) announced that its subsidiary Nanjing Luye, the Divesting Investors, and NJ Xinshi have entered into an Equity Transfer Agreement, whereby NJ Xinshi will acquire a 25% equity interest in Nanjing Luye for RMB 1.086 billion (US$151 million). The transaction features a complex put/call option structure involving China Cinda and guarantees from Luye Pharma, creating a strategic financing vehicle for Nanjing Luye while retaining future repurchase flexibility.
Transaction Overview
| Item | Detail |
|---|---|
| Seller | Divesting Investors (Luye Pharma affiliates) |
| Buyer | NJ Xinshi (limited partnership) |
| Asset | 25% equity interest in Nanjing Luye |
| Consideration | RMB 1,086,383,600 (US$151 million) |
| Transaction Date | 28 Dec 2025 |
| Strategic Rationale | Off-balance-sheet financing with optionality for future repurchase |
Ownership Structure & Partnership Agreements
NJ Xinshi Partnership Composition:
- Shandong Luye (Luye Pharma affiliate): 33.2% interest (RMB 200 million invested Oct 2025)
- China Cinda: 66.4% interest (limited partner)
- Hangzhou Xinshi & Yantai Hexin: 0.2% each (general partners)
Key Agreements:
- Nanjing Luye Equity Option Agreement: NJ Xinshi has the right to require Yantai Luye to repurchase its 25% Nanjing Luye stake upon certain trigger events
- Partnership Distribution Obligation: NJ Xinshi must make semi‑annual distributions to China Cinda
- Guarantee Structure: Luye Pharma and Shenzhen Luye provide joint and several guarantees to China Cinda and Hangzhou Xinshi for Yantai Luye’s obligations
Complex Option Mechanisms
| Option Type | Holder | Trigger Event | Obligation |
|---|---|---|---|
| Put Option | China Cinda | Material breach, performance shortfall, exit demand | Yantai Luye must purchase China Cinda’s 66.4% NJ Xinshi interest |
| Call Option | Yantai Luye | Strategic decision, financing optimization | Yantai Luye may purchase China Cinda’s interest; must simultaneously acquire Hangzhou Xinshi’s 0.2% |
| Nanjing Luye Repurchase Option | NJ Xinshi | Predefined performance or market conditions | Yantai Luye must repurchase the 25% Nanjing Luye stake at formulaic valuation |
| Distribution Shortfall Guarantee | Yantai Luye | NJ Xinshi fails to pay China Cinda | Yantai Luye covers any unpaid semi‑annual distributions |
Simultaneous Purchase Requirement: Exercise of either China Cinda’s Put Option or Yantai Luye’s Call Option obligates Yantai Luye to also acquire Hangzhou Xinshi’s 0.2% general partnership interest, ensuring clean capital structure transitions.
Financial Implications & Capital Structure
Nanjing Luye Valuation: The RMB 1.086 billion price for 25% equity implies a pre‑money valuation of RMB 4.345 billion (US$605 million) for Nanjing Luye, representing a 2.8x premium to its carrying value on Luye Pharma’s books.
Debt Financing: Upon transaction completion, NJ Xinshi will secure a bank facility of up to RMB 648 million (US$90 million), likely used to fund the equity purchase and provide working capital for Nanjing Luye’s operations.
Accounting Treatment: The put/call structure and guarantee arrangements suggest consolidation of Nanjing Luye remains on Luye Pharma’s balance sheet, with the RMB 1.086 billion recorded as a financing liability rather than divestiture gain.
Strategic Rationale & Investor Takeaways
Motivation for Complex Structure:
- Off‑Balance‑Sheet Financing: Raises RMB 1.1 billion without immediate equity dilution at parent level
- Future Flexibility: Call option allows Luye to reacquire full control when strategic value crystallizes
- State‑Back Partnership: China Cinda’s involvement provides implicit credit enhancement and potential policy support
- Capital Recycling: Enables Nanjing Luye to accelerate R&D while Luye Pharma retains operational control
Risk Factors:
- Put Option Trigger: Underperformance could force mandatory repurchase, straining Luye Pharma liquidity
- Guarantee Exposure: Joint guarantees create contingent liability of up to RMB 1.7 billion (purchase + facility)
- Regulatory Scrutiny: Complex structures may attract CSRC review related to related‑party transactions
Market Context: Biotech Financing Trends
China biotech private financing fell 45% in 2025 vs. 2024; strategic partnerships with state‑owned asset managers (like China Cinda) have become a critical funding source, representing 35% of total sector capital raised.
Comparable Transactions:
- InnoCare Pharma secured RMB 800 million via similar put/call structure with CICC in Sep 2025
- BeiGene sold 20% stake in Guangzhou biologics unit to Ping An for RMB 2.5 billion with repurchase rights (Aug 2025)
Forward‑Looking Statements
This brief contains forward‑looking statements regarding the financial impact of the Nanjing Luye transaction, option exercise probabilities, and strategic implications for Luye Pharma’s capital structure. Actual results may differ due to accounting treatment decisions, regulatory reviews, and Nanjing Luye’s operational performance..-Fineline Info & Tech