Shares of SMI Culture had been suspended from trading on the Hong Kong Stock Exchange for some two months, but plunged by more than 50% on news of the deal and the complicated series of capital reconstruction manoeuvres that accompany it. Shares closed Monday trade at HK$0.485 each.
SMI Culture is to pay HK$360 million (US$46.5 million) for a 35% stake in Grand Astute, a holding company which owns two parcels of land in Huairou, near Beijing and a complex on the site, and film and TV investment company Stellar Mega. Grand Astute is principally controlled by Qin Hui, a Chinese businessman who controls both SMI Culture and SMI Corporation.
At the same time, heavily loss-making SMI Culture will eliminate its share premium account, consolidate its capital, relocate its domicile from the Cayman Islands to Bermuda and launch a HK$788 million (US$102 million) rights issue. Losses have exceed HK$600 million or US$77 million in each of the past two financial years.
One prominent stock broker Francis Lun, CEO of Lyncean Securities, criticized the deal-making. “The main issue is to dilute the minority shareholders,” and drive down the stock price, Lun told the South China Morning Post. “Then the large shareholder will have the opportunity to buy back at a lower price.”
SMI Culture said that HK$350 million (HK$45.2 million) of the rights issue proceeds will be poured into film and TV production, via SMI Culture and Stellar Mega.
It says it is in non-binding preliminary negotiations to invest HK$191 million (US$24.7 million) into eight feature film projects and HK$156 million (US$20.1 million) into six TV series with unnamed parties in China.
Stellar Mega has a track record as a film investor, but also spans property and the drinks business. “The principal assets of Stellar Mega are the properties and its investments in Stellar Tourism, Stellar Hotel and Stellar Beverage. It is principally engaged in the provision of television programme and film production facilities leasing services. Since its establishment, Stellar Mega has participated in the production of over 600 movies and television programmes in total,” SMI Culture said in a regulatory filing.