China's Alibaba Pictures to Raise $1.6B in Stock Sale

Shares in Alibaba Pictures have surged more than 160 percent so far in 2015.

Alibaba Pictures, the film unit of Chinese e-commerce giant Alibaba, will seek to raise $1.6 billion by selling 4.2 billion new shares in Hong Kong to help finance future media-related acquisitions.

Alibaba, founded and run by Jack Ma, spent more than $3 billion in the entertainment industry last year, and the cash-rich company went window shopping for content and even potential acquisitions in Hollywood last year, but has yet to make a major move.

"The company intends to use the net proceeds from the Placing for general working capital purposes and to finance potential acquisitions arising out of media-related investment opportunities that may arise in the future," Alibaba Pictures said in a regulatory statement.

"As of the date of this announcement, save as previously disclosed, the Company has not identified any specific acquisition targets," it said.

The Hong Kong-listed film studio racked up a net loss of $53.56 million last year, down from a profit of $24 million a year earlier.

Soon after Alibaba bought control of ChinaVision Media Group to form Alibaba Pictures a year ago, it discovered various accounting irregularities, relating to tax and VAT misstatements over the purchase of art works and TV copyrights, as well as certain TV drama production costs.

Alibaba Pictures raised $807 million last year from a share offering that put Alibaba in control of the company. To date, Alibaba Pictures has used very little of this war chest.

The sale of 4.2 billion shares at HK$2.90 (37 cents) prices the total deal at $1.57 billion and increases the number of shares by 20 percent. This represents a discount of 12.86 percent from the average closing price over the previous five days, and trade was halted on Tuesday, June 2 pending an announcement.

Shares in Alibaba Pictures have risen over 160 percent so far this year. The stock price fell 11 percent when trading resumed on Thursday.

Hong Kong is currently seeing a frenzy of share sales, which have raised $21.9 billion so far this year, excluding IPOs. Something similar is happening in mainland China, where the stock market rally, particularly in tech stocks, has seen deals worth more than $130 billion so far this year.

The group is involved in a slate of films to be produced by Hong Kong filmmaker Wong Kar-wai, including Bai Du Ren, which will be directed by the novelist Zhang Jiajia and feature Tony Leung as the lead actor.

The group recorded revenues of $16.33 million last year, down from $45.1 million a year earlier, which included income from stakes in Peter Chan's Dearest and Ning Hao's Breakup Buddies, as well as the TV drama Bayonet Hero.

Alibaba acquired an 8.8 percent stake in the private entertainment company Enlight for $380 million in March, and in May said Alibaba Pictures chairman Shao Xiaofeng would become CEO of Enlight.

Alibaba's main revenue stream is selling products online, but its recent expansion has seen it invest in online video streaming sites, Internet TV hardware, sports, film production and video games.

In April, Alibaba said that it would incorporate its Taobao Movie online ticketing business and its Yulebao production crowdfunding platform into Alibaba Pictures as it tries to stem losses at the group. In August, Alibaba and Ma’s Yunfeng Capital bought a $1.2 billion stake in online video website Youku Tudou.

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