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September 30, 2009

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New equities market may play starring role in movie funding

THE chief executive of one of China's leading filmmakers says the company's upcoming initial public offering will help other studios tap new funding for their productions.

Huayi Brothers hopes to raise 620 million yuan (US$91 million) by listing on a new board for smaller companies that's expected to launch on the Shenzhen Stock Exchange next month. Chinese securities regulators approved the company's initial public offering and listing application last Sunday.

Huayi Brothers co-founder and general manager, Wang Zhonglei, told The Associated Press yesterday he hopes the share sale will open up new funding sources in an industry that usually takes a longer time to recover initial investments.

Wang said the lack of capital is the biggest challenge for the booming Chinese entertainment industry.

Government statistics show the Chinese box office surged from 920 million yuan in 2003 to 4.3 billion yuan in 2008, compared with US$9.8 billion in the United States last year.

"There are many good entertainment companies in China that want to follow our lead and enter the capital markets. Once they have entered the capital markets, they can enjoy strong capital backing," he said.

Wang, who was promoting Huayi Brothers' new 100 million yuan spy thriller "The Message" in Hong Kong, said the company has received bank loans in the past, but "that's still a very complicated and difficult way of financing."

Founded in 1994 by Wang and his older brother, Wang Zhongjun, Huayi Brothers is best known in the West for its 2008 kung fu movie "The Forbidden Kingdom," a co-production with Hollywood that was the first on-screen collaboration between action stars Jackie Chan and Jet Li.

The studio had five movies among China's top 10 locally made hits from 2006 to 2008, or a 12 percent market share. The country's leading state-run film company, China Film Group, enjoyed a 17 percent market share in the same period.

It's too early to say if any institutional investors will take a large position in the company through the share sale, but top executives are confident that public interest is strong, Wang said.

The Wang brothers currently own 46 percent of the company. Jack Ma, the founder of Chinese e-commerce portal, has an 11 percent stake.

"Everyone is interested in this new kind of stock. We shouldn't have any problems raising funds. We're very confident," Wang said.

Huayi Brothers said in its prospectus it plans to use the 620 million yuan to fund an ambitious slate of six movies and 20 TV drama series in 2009 and 2010.

The new Shenzhen exchange is designed to nurture private companies that struggle to get financing in a system favoring big state enterprises.


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