China Film Co. Shares Surge 58 Percent After Historic IPO

Shanghai Skyling 1 - Getty - H 2016
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The company held the largest public offering in the history of the Chinese entertainment industry Tuesday.

China Film Co., China's dominant state-backed movie distributor, saw its stock prices climb 44 percent on its first day of trading Tuesday, after the company held the largest initial public offering in the history of the Chinese entertainment industry.

With an offering price of 8.92 yuan ($1.34), the Shanghai-listed stock opened at 10.7 yuan ($1.61) on Tuesday morning. After reaching the daily limit, it finished the day at 12.84 yuan ($1.93), valuing China Film Co. at 24 billion yuan ($3.6 billion) at market close. By midmorning Wednesday, the stock price was up another 10 percent to 14.12 yuan ($2.12).

China Film Co. is the distribution arm of the government-controlled film colossus China Film Group. It has a 58 percent share of China's overall movie distribution market, and all imported foreign films are handled by either China Film or fellow state-backed distributor Huaxia. There is no relationship more important to the Hollywood studios in the growing Chinese market than its ties at China Film, which selects which Hollywood titles it will bring into the country, deals with important issues such as securing release dates and censorship clearance, and then handles a large portion of local marketing.  

In 2015, China Film's profits grew 76 percent to 868 million yuan ($130.6 million). In a pre-IPO filing, the company said the capital raised from the share sale would help fuel its expansion plans over the next three years, which include the production of 53 movies and 14 TV dramas, along with the construction of 91 movie theaters. After the sale, China Film Group's stake fell from 93 percent to 67 percent.

China Film's road to IPO was long and bumpy. The company's ambition to go public stretches back to at least 2004, when it tried and failed to gain approval for a listing on the Hong Kong stock exchange. Over the past five years, it postponed an IPO in mainland China on three occasions. 

This week's successful listing of the state-backed entity is being hailed as a watershed event for the Chinese industry, as the public disclosures required by the Shanghai exchange will bring greater transparency to the industry's central player.

It also may encourage more Chinese entertainment outfits to attempt to go public, although getting to market in the near term may be challenging given regulators' increased scrutiny of stock listings this year. Last week, Bloomberg reported that China's IPO market is the hottest it has ever been, with the 62 new stocks listed in 2016 soaring 420 percent on average in their first month of trading. But the value and number of such deals has declined as regulators have looked to stabilize China's equity markets and prevent oversupply. More than 800 companies have filed IPO applications and are waiting for approval, according to the China Securities Regulatory Commission.

At the end of June, 17 film and entertainment companies were listed in China's A-share market. Wanda Cinema Line Corp. occupied the top position with a total value of 93.83 billion yuan ($14.1 billion).