Regulators urge filmmakers to go new routes

With more and more cinemas being built every year, box office in China is booming. Encouraged by this, the powerful regulators that run China’s film biz are urging the country’s biggest production companies to do something that was unthinkable even a few years ago: fund their expansion plans via the stock market.

Among those seeking funds are Huayi Bros. and Polybona, as well as two state-owned orgs: China Film Group Corp. and Shanghai Film Group.

The companies will file for IPOs as part of a broader plan by the government to streamline and modernize the film biz. The moves are being closely watched by Westerners who have long been thwarted in their attempts to do business with China.

The Chinese market still remains largely closed to investors from abroad, except through a limited number of investment vehicles such as co-productions.

Foreign investors, for example, are largely excluded from trading in Chinese currency-denominated shares. But greater integration of the Chinese biz, combined with more transparency, could be a first step toward allowing more foreign access to the booming industry here — particularly since Beijing Polybona Film Publishing Co., which finished its second round of financing in June by raising $14.64 million, said it intends to go public in the U.S. in 2011.

Breaking into the Chinese market has proven notoriously difficult for Westerners — giants like Rupert Murdoch and Warners’ exhibition unit were left licking their wounds after  running afoul of political or regulatory issues. But little by little there are cracks emerging in the edifice of state control, and seeking foreign listings is another step on the road for foreign capital finding a way into the world’s biggest potential market.

Box office revenues are becoming increasingly important to China. These are the golden years of Chinese cinema, with box office hitting $366 million in the first half of 2009. While that total may seem paltry to Hollywood — it’s less than the global tally of “The Hangover” alone — it represents an astonishing climb for the past decade.

Banks are being encouraged to lend money as part of a stimulus plan, and bank lending accounted for 25% of total gross domestic product in the first half of this year. Some of this cash is heading into the entertainment industry. The world’s biggest bank by profit and market capitalization, ICBC, says it’s targeting the Chinese movie industry, including distributors and exhibs, as an important part of its overall loan book.

Government regulators had made an earlier attempt to turn the film biz into a lean and well-funded machine, but their efforts were slowed by the global financial crisis. However, the massive $585 billion stimulus spend by the Chinese government has put the scheme back on track.

“We intend to foster industry integration and allow qualified companies to raise capital from the equity market,” said Zhu Hong of the all-powerful State Administration of Radio Film and Television in a recent report.

One of the country’s top private companies Huayi Bros. will launch an initial public offering to raise money on a new Nasdaq-style market.

“Our target is to raise 620 million yuan ($91 million),” says company vice prexy and chief financial officer Hu Ming. “After going to the market, our influence will be strengthened. We intend to focus on our main business, which is the film and TV content. As far as films go, we will mainly work on commercial films, but we will also make some art films.”

The company plans to sell shares for a 25% stake in the company.

Huayi Bros. was founded in 1994 by siblings Wang Zhongjun and Wang Zhonglei. It has had a remarkable rise in recent years and is one of the country’s top private companies. The org is involved in film, TV, artists representation and advertising plus it has a music label.

Its successes include the 2008 “The Forbidden Kingdom,” which brought Jackie Chan and Jet Li together. Its collaborations with China’s most popular helmer, Feng Xiaogang, have reaped rewards on movies such as “Assembly” and “If You Are the One,” which has taken over $44 million in B.O.

A review of Huayi’s IPO plan was confirmed in a notice on China’s Securities Regulatory Commission website. The aim is to list on the Shenzhen Stock Exchange’s ChiNext, a trading board in the southern boomtown of Shenzhen for smaller companies that is expected to launch before the end of the year.

Meanwhile, China Film Group has its own plans.

“The intermediaries have been working on the listing plans for a year and a half now. We plan to set up a joint-stock company in October and are looking at getting listed in the first half of 2010,” Jiang Tao, CFO with China Film Group, told the Shanghai Securities News.

Per Jiang, a group of strategic investors is keen to invest in the company. These include Beijing Gehua CATV Network Co and China Intl. TV.

This bullish approach is born out by China Film’s prexy Han Sanping, flush with the success of his propaganda epic “The Founding of a Republic,” the biggest earning local pic ever. He said earlier this year, “Movie ticket sales in the country could reach $5.1 billion in 10 years while revenue may cross $14.6 billion.”

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