China Film Group Plans $740 Million IPO

7:27 PM PST 06/19/2014 by Clifford Coonan
Illustration by: Lars Leetaru

After years of stop-start negotiations, the country's largest film producer and distributor is finally going public.

The state-owned colossus China Film Group is planning a $740 million initial public offering ahead of a stock market listing in Shanghai, according to regulator information.

China Film is a giant in the Chinese film industry. In addition to producing, importing, exporting and distributing films, it also operates theater chains, sells film equipment and manages talent.

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China's film market is the second biggest in the world and has grown rapidly, and the listing of China Film Group is a sign of concerted efforts to build up an infrastructure for future growth and help the industry compete with Hollywood.

This week, the Chinese government has unveiled a major policy document from several ministries to boost the film industry with tax incentives and a fund to support certain state-approved movies.

The measures are aimed at "enhancing the overall strength and competitiveness of Chinese films."

In last three years, China Film Group has participated in the production of 63 all types of films and accounted for 18.37 percent of the national box office, according to the China Securities Regulatory Commission.

China Film Group plans to issue 467 million new shares at $0.16 (one yuan) per share to raise $740 million (4.618 billion yuan) in its Shanghai IPO, the statement said.

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The prospectus shows that domestic ticket sales have been growing by 25 percent annually for the past eight years, and ticket revenues at theater chains controlled by China Film grew around 19 percent between 2012 and 2013.

Net profit between 2011 and 2013 was $82.63 million, $89.85 million and $68.67 million. Net profit rose 8.79 percent in 2012 year-over-year.

The 24 percent decline in net profitability last year was due to changes in film import rules which meant it earned less income from importing films.

In the last three years, the company has been involved in releasing 591 domestic films and 225 imported films and its market share reached up to 78 percent.

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However, the figures also showed that the market for exporting films is difficult.

China's biggest cinema chain, Wanda Cinema Line Co., plans to raise $320 million in a Shenzhen stock exchange listing, while Shanghai Film Group plans to raise $155.45 million from its listing.

Earlier this year, investors had been worried that China had effectively frozen IPOs, after no new companies were granted permission to seek a listing for nearly two months.

China allowed initial public offerings on the country's two bourses to resume in early 2014 after a hiatus of 14 months, allowing around 50 already approved companies to list on the Shanghai and Shenzhen exchanges.

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