Screen Capital to fund 50 Chinese theaters

Ira Stiegler's Red Carpet will build and operate cinemas

Specialist financier Screen Capital Intl. has inked a deal with former Warner Bros. Intl. Cinema exec Ira Stiegler’s Red Carpet Cinemas to build 50 theaters in China over the next five years, an agreement that takes advantage of a rapidly growing theatrical marketplace.

First theater, a seven screener, opened in February in Yangjiang, a Southeast province of Guangdong. Location is a sign of China’s theatrical construction boom moving out of the major cities and into more rural areas. It’s the first of six such sites planned this year.

SCI, which assembled a $100 million facility for content financing company Incentive Filmed Entertainment in 2008, expects to spend as much as $50 million in equity on the project, a combination of investments from U.S.-based institutional investors and individual Chinese financiers.

Once enough theaters are up and running, SCI and RCC plan to use operating cashflows to secure roughly $50 million in debt. But with little history of U.S. lenders providing funding for comparable China-based endeavors, SCI will likely have to look for offshore backing.

RCC intends to design, build and operate each theater, with an average screen count of seven to eight per site.

According to SCI’s estimates, construction of each theater will cost between $2 million and $3 million, as compared to between $11 million and $12 million in the U.S.

Besides costing less to build, SCI is also anticipating considerably lower operating costs. Prior to SCI’s theater in Yangjiang, the province had just one operating theater, a four-screen site serving the area’s 2.5 million people. In its first year, the plex took in $1.5 million.

SCI and RCC plan to target cities of between one and four million residents. The fund will look for those locations that it considers to be underserved by the number of established multiplexes.

China added 803 new theaters last year, bringing the total number of screens past 9,000, according to a recent speech by China Film Group prexy Yang Buting. The Chinese government has estimated that the country will have 60,000 screens by 2016.

And SCI and RCC want to take advantage of those numbers before they flatten out.

“China’s theaters are only ever going to get built once,” said SCI director Clint Kisker, a fluent Mandarin-speaker who led the transaction. Kisker added that the company’s goal is to become an “integral and well-established” part of China’s distribution infrastructure.

But it’s not just the number of theaters that’s rising. Ticket prices have gone up, too, and those numbers are catching up to the U.S. According to SCI’s data, the average movie ticket in China is $4.25, compared to a U.S. average of $7.89.

Asian Capital Partners in Hong Kong acted as co-arranger. Kirkland & Ellis in Shanghai and Hong Kong and O’Melveny & Meyers in Shanghai advised investors. Trans Asia Lawyers in Beijing advised RCC.