AMC Theatres on Chinese Restrictions: Wanda "Has Never Been a Source of Acquisition Funding"

AMC Theaters Exterior GETTY H 2016
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China's top banking regulators have ordered the country's largest financial institutions to stop lending to tycoon Wang Jianlin's Wanda to finance its overseas entertainment acquisitions.

AMC Theatres has commented on restrictions recently put on Chinese owner Dalian Wanda Group by clarifying that "Dalian Wanda has never been a source of acquisition funding for AMC."

"Mainland China-based banks have never been a source of any funding for AMC," the theater chain also said in an extended statement released Tuesday.

AMC's stock was up about 2.8 percent at $20.25 at 10:15 a.m. ET after the company commented on the situation.

The Chinese government's top banking regulators have ordered the country's largest financial institutions to stop lending to tycoon Wang Jianlin's Wanda to finance its overseas entertainment acquisitions, according to a report by The Wall Street Journal.

It said that six of Wanda's recent overseas acquisitions — including AMC's deals to acquire Carmike Cinemas and the Nordic Cinema Group — were subject to the government's restrictions on capital outflows unveiled last year. A source told the paper that the actions can be expected to prevent Wanda from generating new financing in China for past offshore deals.

AMC said Tuesday that "at no time was Wanda ever a source of funding" for the theater chain's acquisitions of Starplex, Odeon, Carmike or Nordic.

"AMC has never received committed financing from any bank headquartered in mainland China for any purpose, including for acquisitions," the company added. "All committed debt financing for AMC’s three most recent acquisitions were funded by a syndicate of U.S.-based banks with AMC as the borrower without financial guarantees or credit enhancements from Wanda. The fourth acquisition was funded by AMC’s available cash on hand."

Beyond that, AMC said "intercompany transactions" with Wanda are "de minimis" and "typically immaterial" amounts that include the Chinese company reimbursing AMC for administrative and other expenses. Total reimbursements of expenses from Wanda for 2017 are expected to be less than $600,000, it said. 

“AMC is an American company run from its Leawood, Kansas, headquarters by our management teams located in the U.S. and Europe,” AMC CEO Adam Aron said. “Our shares are publicly traded on the New York Stock Exchange, and our shareholder roster includes some of the biggest U.S.-based institutional investors, as well as Dalian Wanda, which owns a majority of our shares. Wanda has been a terrific shareholder, and we are grateful for Wanda’s support of AMC’s efforts over the past few years to grow our business, to increase our profitability, to sustain some 45,000 U.S. and European jobs for AMC employees and to improve the movie going experience for our more than 350 million U.S. and European guests each year. Wanda does not actively participate in the day-to-day running of AMC beyond the board of directors service of three Wanda executives side-by-side with six American directors on the AMC board. Accordingly, recent press reports notwithstanding, we greatly look forward to Wanda’s continued support as an AMC shareholder.”

Credit Suisse analyst Omar Sheikh had on Monday cut his target price on AMC's stock by $3 to $17, citing the report "that the Chinese government may enforce capital restrictions on AMC's 58 percent shareholder." He wrote in a report: "This heightens the risk that AMC will not have a 'backstop' financing partner going forward –- as the U.S. box office continues to weaken in the third quarter and ahead of the potential launch of a new premium VOD window, this is likely to continue to compress AMC's multiple, in our view." He has an "underperform" rating on the stock.

Sheikh also explained: "We do not believe Wanda will look to sell its shareholding in AMC, as it did with its theme park assets, but we would argue that it is also unlikely that they will step in to provide debt financing, or to buy out the minorities, in future."

After what he called "a steep decline" in the stock, Sheikh said "we are intrigued by AMC's valuation" but explained that he isn't recommending the stock right now due to the company's debt leverage "and a potentially profound upcoming change in the industry's 13-week exclusivity period for exploiting movie content." Concluded the analyst: "We would argue the risks of owning the stock remain high."