China Film Group Reorganizes Ahead of IPO

The state-run film producer, importer and distributor sold a 1% stake to a Beijing cable company for $3.2 million.

BEIJING – State-run China Film Group has sold a 1% stake in a new company it established in preparation for an initial public offering, documents filed with the Shanghai Stock Exchange revealed on Wednesday.

CFG’s sale of a small piece of China Film Co. Ltd. for $3.2 million to Shanghai-listed Beijing Gehua Cable TV Network, the capital’s only cable operator, came after high-level government approvals of a restructuring needed to clear the way for a long-awaited listing, local media reported.

A listing of the country’s leading film studio, top movie distributor and monopoly film importer, expected in the coming months, would see CFG register 1.4 billion yuan ($212 million) in capital, The Global Times reported.

Such a listing could come just as China is expected by March 19 to move to uphold a World Trade Organization ruling that mandates allowing greater foreign participation in the China market for copyrighted cultural content, such as movies and television.

To list in Shanghai, CFG must dilute its full ownership stake, Zheng Yongshuang, media analyst with Donghai Securities, told The Global Times, which said “the partnership is expected to benefit both parties, enabling China Film Inc to extend its cable TV programming.”

“In return, Beijing Gehua can also benefit from the lower cost of airing films from China Film Inc,” Yin Hong, a professor at the School of Journalism and Communication at Tsinghua University told the state-run English-language daily.

Gehua, a part of another state-run company, Beijing Gehua Cultural Development Group, invested 21.31 million yuan in to acquire 14 million shares, or a 1% stake in the newly-established China Film Co.

So far, all China Film Inc's shareholders are state-owned companies, including CFG’s 75% stake and smaller stakes, each under 5%, owned by Gehua, China Unicom, China Central Television, and, an online business portal owned by Phoenix TV.

CFG’s IPO restructuring plans were approved by the Publicity Department of the Central Committee of the Communist Party of China, China's Ministry of Finance and the State Administration of Radio, Film and Television, Beijing-based media consultancy Marbridge said.

Gehua, which launched a content production business in 2008 to feed its digital cable television subscribers, said the investment in China Film Co. “was part of an effort to forge links between its DTV business and the content supply chain in order to increase profitability,” Marbridge said.

"China's government authorities are currently working to facilitate listings for a variety of state-owned enterprises such as People's Daily Online, and others in the culture industry with the aim of stimulating within each organization a more commercial, competitive approach to and understanding of business," Marbridge analyst Mark Natkin told The Hollywood Reporter.

Neither Gehua nor CFG responded immediately to requests for more information.

A CFG IPO would make it the third Chinese filmed entertainment production company to go to market. Beijing-based Huayi Brothers Media raised $176 million on the Shenzhen Stock Exchange in October 2009 and Bona Film Group raised $80 million on the Nasdaq last December.

On Thursday, shares of Huayi -- which has a market capitalization of 9.6 billion yuan ($1.5 billion) -- traded in Shenzhen at 28.52 yuan ($4.30), in the lower half of their 12-month trading range of 21.44-40.50 yuan ($3.24-$6.11).

Meanwhile, in New York, shares of Bona – which has a market capitalization of $375 million – closed on Wednesday at $6.38, well below its Dec. 9 IPO price of $8.50 each, which analysts called overpriced.