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China Star throws the dice

Company sells stakes in Riche, Brilliant Arts

HONG KONG — China Star Entertainment will sell its stake in Chinese film distributor Riche Multi-Media and a smaller stake in production services and distribution company Brilliant Arts for a total of HK $331 million ($42.4 million).

Brilliant Arts was previously the owner of Milkyway Image (Hong Kong), the production shingle through which Johnnie To made many of his movies.

Sale reduces China Star’s commitment to the film biz and increases its exposure to the gambling sector.

Buyer of the stakes is Glenstone, an offshore company controlled by Charles Heung and Tiffany Chen, who are also the chairman and vice chair, respectively, of China Star.

Sale represents an estimated loss of $10.1 million to China Star. But company says that holding the stakes in Riche Multi-Media and Brilliant Arts is no longer in its interest.

China Star sells its films directly to other distributors in mainland China, so it has no use for a 29% holding in Riche. Last year China Star released only two movies, a situation it blamed on “the weak market condition of the Hong Kong entertainment industry, especially for the Chinese-language films.”

Its interest in Brilliant Arts was purely for investment purposes, but it proved a bad investment. Brilliant had to seek extra financing and saw the value of its shares sink. A recent share issue cut China Star’s holding in Brilliant from 26% to 8.7%.  All three companies are listed on the Hong Kong Stock Exchange.

China Star’s revenue generated from the distribution of films dropped 30% from about $11.8 million in 2005 to about $8.24 million in 2007, according to China Star’s filings with the Stock Exchange. China Star said Riche Group did not generate any film distribution income in 2007.

China Star documentation says that Brilliant Arts made a profit of $2.05 million in the nine months to December 2007, compared to a loss of $935,000 in 2006. But it notes that the improvement was mainly from the sale of Milkyway Image and Luminous Star. Their sale provided a net gain of $3.6 million.

China Star describes itself as a company with subsidiaries in film, TV and gaming promotion, but increasingly the accent is on gaming.

In March it completed a takeover of Best Mind Intl., a company that brings high rollers to Macau’s gambling tables and has guaranteed China Star a profit of $49 million over two years to August 2009.

Although Riche has also bought into the gaming sector through another recent acquisition, China Star said this “does not provide any synergy to the group’s core businesses.”

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