China Mystery: Why Did Paramount's $1 Billion Financing Deal Fall Apart?

Courtesy of Paramount Pictures
Huahua Media had been a marketing partner on Paramount's 'Transformers: The Last Knight,' which grossed $605 million.

The slow — and then sudden — death of a murky billion-dollar pact between the studio and Shanghai-based Huahua raises questions about whether it was real in the first place.

Paramount's $1 billion slate financing deal with China's Huahua Media and Shanghai Film Group finally reached its long-rumored denouement last week, with the parties announcing Nov. 8 that they were scrapping the pact and parting ways. Paramount's official explanation for the breakdown fit the pattern industry watchers had come to expect from big-dollar agreements involving China recently: "changes to Chinese foreign investment policies" were to blame, the studio said.

But sources close to Huahua, however, counter to The Hollywood Reporter that the Shanghai-based company deliberately aborted the pact because of the poor performance of Paramount's recent releases and dismal projections it was seeing for the studio's near-term lineup. Paramount declined to comment, and Huahua did not respond to requests for on-the-record comment.

The failed Paramount pact joins a scrap heap of aborted deals totaling billions, including China buyouts of Dick Clark Productions, Voltage and Millennium. Under the terms of the financing agreement, SFG and Huahua, which previously came together to invest in Paramount titles like Jack Reacher 2 and xXx: The Return of Xander Cage, were to each have covered $500 million of the pact. Shanghai Film Group, a state-backed film studio traded on the Shanghai stock exchange, is believed to have been prevented from moving a large amount of capital overseas because of Beijing regulators' crackdown on capital outflows. Sources close to Huahua, by contrast, claim that the company has abundant offshore capital, out of reach from regulators, and could have followed through with the deal — if it cared to.

The slate saga took perhaps its strangest turn in August, when control of Huahua was sold to another Chinese firm for just $41.2 million — meanwhile, the Paramount pact was still hanging in abeyance, with the studio awaiting its first, delayed payment. The Huahua buyer, Oriental Times Media Co., was said to be engaged in the manufacture and sale of precision tools; but like so many Chinese concerns of late, it had embarked on a pivot into the entertainment sector in 2015. 

Oriental Times trades on the Shenzhen stock exchange, and regulatory filings associated with the Huahua buyout made it clear that the company never would have been able to finance more than a fraction of its $500 million share of the Paramount deal on its own — records show that the company's net profit in 2016 was just $5.9 million on revenue of $19.5 million. Any documentation indicating Huahua's alleged large offshore holdings was never disclosed during the sale.

Huahua's original plan, sources say, was to syndicate the deal out to an array of sub-investors within China — a task that may have proven impossible as regulators stepped up their oversight of all outbound entertainment transactions.

"Some of the holdup wasn't always on the Chinese side," says a source close to Paramount. "There are a lot of regulations and legalities that need to be worked through when a studio is taking money from overseas." The source adds, "The reality was, Huahua didn't deliver the money, and the studio had to move on."

A version of this story first appeared in the Nov. 15 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.