Monday 24 September 2018

Richard Curran: Major Dundalk biopharma deal shows we've finally cracked China

Taoiseach Leo Varadkar with Dr Ge Li, chairman of WuXi Biologics. Photo: Paul Connor
Taoiseach Leo Varadkar with Dr Ge Li, chairman of WuXi Biologics. Photo: Paul Connor
Richard Curran

Richard Curran

Ireland has finally cracked China when it comes to economic activity, trade and investment. We now have Chinese companies investing in Ireland by acquiring businesses, such as aviation-leasing business Avolon. We have Irish beef plants cleared for export to the Chinese market.

But perhaps one of the most significant developments of all came last week, when biopharma group WuXi Biologics announced a €324m investment in Dundalk.

The company is listed on the Hong Kong stock exchange and it has seen its share price rocket by 250pc since it floated. The stock is up 60pc so far this year.

Biologics involves products used for vaccines, blood components, allergenics, tissues and gene therapy. Biologics can be composed of sugars, proteins or complex combinations of these substances.

They represent the new wave of biotechnology pharmaceuticals and WuXi helps companies to develop new products. It has an open platform which means it makes it facilities available to numerous clients who want to develop a product.

WuXi chief executive Dr Chris Chen highlighted last week one client company through which the company had $10,000 of business six years ago, and this year it will be $80m. WuXi is expanding rapidly, with four new facilities being built in China.

The Dundalk investment is hugely significant for several reasons. It shows Ireland's slow game of attracting Chinese investment is now paying off.

This is WuXi's first investment outside China, and it has chosen to go to Ireland. This makes it a very significant signal to other Chinese companies.

It has also chosen to go to Dundalk, rather than Cork or Dublin. Hence it is a feather in the cap for IDA Ireland and its regional jobs targets. It is ironic that Taoiseach Leo Varadkar was in the Dundalk area both for this investment and also to meet Brexit negotiator Michel Barnier during the week.

While he was hearing some depressing news on the Brexit front about the challenges, he was also on hand to announce a massive investment which, if it wasn't for Brexit, might have gone to the UK.

Chen spoke very highly of Ireland's economic strategy on Bloomberg TV last week, and when asked about whether low Irish corporation taxes were a factor, he was refreshingly honest.

"Wages in Ireland will be higher than in China but with the tax breaks we can get closer to the margin we get in China. This is a critical part of our decision as well," he said.

WuXi does a lot of business with pharma companies and the fact that so many major pharma players are already in Ireland was probably also a big factor.

But Brexit is there too. "Ireland is an attractive investment option, because it will remain in the EU once the UK withdraws," Chen said. Ireland's proximity to mainland Europe provides continued development and manufacturing organisation "access to the EU market", he added.

When it comes to China, Irish exports have been growing from a relatively low base. But when it came to inward investment, it seemed that we were barely on the radar until quite recently.

We didn't even get that many Chinese tourists coming here, apart from a few expensive handbag purchasers heading to Brown Thomas.

The UK may want freedom to do its own trade deals with places like China after Brexit, but it could bounce out of a free-trade relationship with the EU, including Ireland.

Last year, UK exports to China were £16.3bn. Its exports to India were £3.7bn. UK exports to Ireland were £26.7bn, a lot more than China and India combined. Yet Chinese firms invested £20bn in the UK in 2017. This shows how much Chinese investment is potentially up for grabs - and Ireland may now be in a position to win a lot more of it.

Merrion Capital shareholders to enjoy one last windfall twist

Speaking of Chinese investment in Ireland, a group of investors is also in advanced negotiations to acquire Goodbody Stockbrokers. The talks have been progressing for some time, but last week saw a takeover of Merrion Capital by the Irish arm of US giant Cantor.

The Merrion deal is valued at around €13m to €18m depending on earn-outs. Merrion is a much smaller business than it was through various ownership incarnations in the past.

It has changed ownership several times, including when founder and former chief executive John Conroy sold the company to Iceland's Landsbanki at the top of the market, only to buy it back at the bottom.

Throughout the various ownership deals, Merrion has returned an estimated €125m to its shareholders, many of whom have sold out before this deal.

But add on another €15m for this sale, and the figure hits €140m returned to shareholders from what was an initial €4m investment back in 2000.

The consolidation of the broking sector comes as no surprise.

After the crash of 2008, the extent to which it had become a commodity business was self-evident. However, brokers have added value by moving into wealth management, corporate finance, etc.

Merrion is a small player and one of its attractions for Cantor would be Merrion Investment Managers which has significant client funds under management.

When companies like Cantor are selling themselves around the world to major prospective clients, they like to quote numbers of how many billion they have under management.

Other deals in the sector are rumoured although AIB is no longer interested in buying Investec's Irish broking arm.

The heady days of lunchtime broking, high fees and a cornered market have been replaced with online trading, higher regulatory costs and greater transparency.

So much for the good old days.

Get in quick for the last of the first-time buyer cheap mortgages

No wonder Housing Minister Eoghan Murphy is extending his mortgage scheme for first-time buyers. It's a bloody great deal. There are few surprises that the initial €200m made available in fixed rate 25 to 30-year mortgages is being snapped up.

The Rebuilding Ireland Home Loan was launched earlier this year and provides for first-time buyers with a single income under €50,000 per year or a couple with a combined income of under €75,000 to receive a mortgage from a local authority.

The snag is that you have to be refused a mortgage by two banks before you can avail of it. So far there have been 660 applications to the scheme across local authorities with 138 approved and 141 declined.

The refusal from two banks doesn't mean the State is looking for higher-risk sub-prime borrowers, but reflects the fact that applicants don't need to be stress tested on the impact of interest rate rises in the future - something which might lead them to fail an application with a bank. But one punter, who was declined a mortgage through the scheme, says she exceeded the annual income level because of overtime. This raises the question of whether you could be penalised for being a hard-working person who will do extra work to enhance your income.

It seems contrary to the principle of prudent lending that you would punish those who work harder to lift their earnings by not letting them into the scheme.

The Housing Finance Agency plans to make more money available for the scheme once the initial €200m has been drawn down. The problem is it will be made available at a new rate, depending on the prevailing rates in the market. Get in quick.

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