March 27 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, canceled a $282 million loan to fund an investor group's buyout of Harbin Pharmaceutical Group Co., China's largest drugmaker, following a change in the rules on such deals, said bankers involved in the proposed financing.

Warburg Pincus LLC in New York, Citic Capital Markets Holdings Ltd. in Hong Kong and Heilongjiang Chenergy HIT High- tech Venture Capital Co. in the northeastern city of Harbin were borrowing to buy the 65 percent stake they don't already own in Harbin Pharmaceutical.

China has ended a requirement that investors owning more than 30 percent of a listed company make a general offer to purchase a 100 percent stake, said Zhou Ning, a partner at Beijing-based law firm King & Wood PRC Lawyers. The funding for Harbin is subject to change because the new rules have led to buyout firms renegotiating terms, said the three bankers and another person involved, all of whom declined to be identified.

``The new law should help improve the flexibility and efficiency of merger and acquisition activities in China,'' Zhou said in a telephone interview March 24. ``It will help reduce the cost for buyers who only want to gain majority control of a listed company rather than taking it private.''

Citigroup's Hong Kong-based spokesman James Griffiths and Jonathan Wharton, a spokesman for Warburg Pincus, declined to comment. Gao Ye, a spokesman for Harbin Pharmaceutical, was out of the office when Bloomberg called March 24. Heilongjiang Chenergy could not be contacted.

Drug Sales Soar

Pharmaceutical sales jumped more than 20 percent in China last year to $11.7 billion, and the market will probably be the world's seventh-largest by 2009, prescription-tracking service IMS Health Inc. said in a March 21 report.

Warburg Pincus, Citic Capital and Heilongjiang Chenergy last year bought a combined 55 percent of Harbin's parent company. The parent owns 35 percent of Harbin Pharmaceutical.

Under the original agreement, the parent company planned to buy all of Harbin Pharmaceutical and then sell at least 17 percent of the listed company on the stock exchange within nine months. The parent intended using proceeds from the share sale to repay at least two-thirds of the five-year loan, bankers involved in the deal said Nov. 7.

China's regulators have yet to specify the minimum amount of a company that investors holding 30 percent must offer to purchase under the new rules, Zhou said.

In a leveraged buyout, the acquirer takes loans in the target's name and uses its cash flow to repay lenders. Buyout firms then typically try to expand those companies or improve performance before selling them at a profit within five years.

Harbin sells Chinese and Western medicines and health-care supplements under its own brand. It had revenue of 7.27 billion yuan ($905 million) in 2004, the company's latest figures show.

Harbin is aiming for more than 10 billion yuan of sales in 2005 and expects profit to jump more than 60 percent to 640 million yuan, China Business News reported Sept. 29.