China's LeTV Plans to Raise $1.2B to Bankroll New Projects
The news comes amid growing speculation about consolidation in the video-streaming market in China.
Chinese video content provider LeTV said it would issue 200 million new shares to raise $1.2 billion to bankroll several new projects, including the building of an online video resource library.
LeTV is the biggest of the top five in China's online video market, with Tencent Video, Sohu.com, Youku Tudou and iQiyi, and analysts believe it's a question of when, not if, the industry consolidates.
These whispers got louder earlier this month with reports that Netflix has been talking to possible partners in China, including Wasu Media, a Chinese media group backed by Alibaba chief Jack Ma.
News of LeTV share sale led to a sharp drop in the share price of LeTV, or Leshi Internet Information & Technology. The stock was down nearly 10 percent at close of trade on Thursday, May 28.
LeTV plans to raise the money by issuing the shares "to no more than five individuals," according to a regulatory announcement on May 25.
LeTV is listed on ChiNext, the NASDAQ-style board on the Shenzhen Stock Exchange.
In August of last year, LeTV announced that it would issue more than 100 million shares to raise more than $650 million to replenish its capital. However, the China Securities Regulatory Commission has not approved the plan.
The private entertainment company, whose LeVision Pictures film unit is a growing force in production, said in April that it would launch a smartphone, and said that it would link up with directors Zhang Yimou, Tsui Hark and Zheng Xiaolong to boost its content.
LeTV CEO Jia Yueting, who owns about 44 percent of the company's shares, plans to reduce his stake by no more than 8 percent, according to LeTV's announcement. Jia will start selling his shares on Friday, May 29 and finish within six months.
The sale will earn Jia an estimated $1.61 billion, the Shanghai Securities News reported. According to the company announcement, Jia would then lend the proceeds of his sale to the company to "relieve its financial pressure."
Despite the decline on the news of the stock issue, the shares have more than quadrupled in value this year, and by Monday the company had a market capitalization of $22.8 billion.
China's stock markets have been on an unprecedented bull run, especially tech stocks, and IT industry commentator Xiang Ligang told the Global Times newspaper that LeTV was seizing the opportunity.
"Although the share prices of ChiNext companies such as LeTV seem abnormal, the situation presents these companies with a good opportunity to raise sufficient cash," he said, adding that the cash-out plan would greatly benefit LeTV's business, as the company needs a large sum of money to develop new businesses, especially the LeTV mobile phone.
In January, Jia said he expected revenues to more than double in 2015. In addition to entertainment and the smartphone, LeTV is also developing its smart TV business and working on an electric car
Last year, the company was blighted by rumors of links to a high-level corruption investigation in the coal-rich province of Shanxi, which Jia seems to have shrugged off, although he admitted that an early investor was a company linked to the graft probe.
LeTV's revenues were $1.6 billion in 2014 and last year, LeVision produced The Expendables 3 and the Zhang Yimou movie Coming Home. It also has a stake in the Tiny Times franchise and is involved in John Woo's recently launched epic, The Crossing.
LeVision has plans for "an expansive development slate" that will utilize top-flight talent from Hollywood and China to create $100 million-plus tentpoles for the global marketplace.
In October, LeVision set up an office in L.A. and said it would bankroll its Hollywood campaign with a $200 million film fund to make blockbusters.
LeVision has also picked up its first U.S. project, an epic fantasy adventure titled 8 Immortals inspired by Chinese mythology from writer Jeremy Breslau, the first in its plan to make China-Hollywood blockbuster co-productions.
LeVision Pictures USA plans to attach a high-profile Hollywood director and partner with a major studio for what will be an English-language Chinese-American co-production.
Meanwhile, there was market speculation that Wanda Cinema Line, whose stock stopped trading two weeks ago, was planning to issue 12 million shares to LeTV and to buy nearly 70 percent of the group.
There was no comment from Wanda Pictures, other than to announce that it will start trading again before June 26.