China media fund raises $294 mil

Latest round of $735 mil, government-backed fund

BEIJING -- A state-backed Chinese investment firm led by Shanghai Media Group CEO Li Ruigang said Monday it had raised $294 million in first-round private equity to develop market-oriented media and entertainment companies.

The announcement, by China Media Capital, is the latest stage in a $735 million fund plan approved in April 2009 by the government to promote content and distribution companies that could begin to operate outside the strict control over media historically exercised by Beijing.

"We are disciplined to make returns and focused on the economics of China's media and entertainment sectors," CMC's chief investment officer Michael Tung -- a former fund manager for Citigroup-invested Sycamore Partners -- told The Hollywood Reporter.

After establishing its fund with legal help from New York-based law firm Weil, Gotshal & Manges, Shanghai-based CMC began in January to raise 2 billion yuan ($294 million) from five state-owned institutional investors led by the China Development Bank and affiliates of SMG.

"We believe China's consistent double-digit growth in the media and entertainment sectors, along with certain special situations in the international market, present a wealth of investment opportunities," Li, CMC's chairman, said in a statement.

The firm's announcement comes as spending by China's swelling middle class has boosted movie ticket sales (up 43% in 2009 to $909 million), grown China's online video games' fan base to the largest in the world and sparked speedy sales of everything from fashion to sports cars.

At a time when Hollywood is cash-poor and one of its former greats is on the block (bankrupt MGM has been for sale since November), CMC hasn't ruled out major overseas acquisitions, Tung said.

"With our unique investor base, we are also able to lead or participate in large buyout transactions in excess of 6 billion yuan ($883 million)," Tung said in a statement, later qualifying over the phone that: "The Hollywood studios are not in our deal pipeline for the time being."

Tung also said that CMC was looking into ways to raise U.S. dollar-denominated funds, just as Blackstone Capital and Goldman Sachs now are raising private equity in China's currency the yuan.

"We are not limited to investments in China," Tung said.

SMG is China's second-largest media operator after China Central Television, with 2009 revenue of at least 7 billion yuan ($1.03 billion) from its myriad holdings in film, television, radio, publications and new media.

Both the China Development Bank and SMG committed 650 million yuan to CMC's first round of funding, said Tung, adding that the three other major partners in CMC--each investing 200 million-300 million yuan--are Hong Kong-listed China Merchant Group (parent of the China Merchant Bank), the Shanghai-based newspaper group Wen Hui Bao, and Shanghai-based Dazhong Utility.

From this first round of private equity CMC expects to be able to generate "a three-times or higher absolute return" over the next three to five years, Li said.

In its first investments CMC will target companies it values between 300 million to 2 billion yuan. Tung said the firm would close deals by the end of 2010 on two or three China-based content creation companies and one new media distribution company.

By the end of the first quarter of 2011, CMC hopes to have raised an additional $441 million in private equity, the balance of the fund it was told last spring it could manage by the National Development Reform Council in Beijing.
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