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IMAX China Share Listing Set to Raise $276 Million

IMAX Corp. is moving ahead with the listing of its IMAX China subsidiary. The share sale that began Tuesday in Hong Kong will seek to raise some US$276 million.

According to a term sheet circulated to financial media some 17% of the company will be sold at an indicative price range of HK$29.8-HK$34.5 per share. The sale price will be fixed on Sept. 30 and the shares begin trading on Oct. 8.

The stock being sold include new shares that will raise cash for working capital and expansion, as well as existing shares that come from IMAX Corp., FountainVest Partners and China Media Capital. According to financial reports the company’s bankers have arranged for five cornerstone investors to acquire some US$55 million of shares in the flotation.

The share listing is one of the first since the Hong Kong share market was dragged down nearly 20% by the rout in mainland China stocks since mid-July. Despite such uncertainty, the share issue could be expanded to US$317 million if investor demand is strong enough.

A pre-listing filing recently showed that as of June 30 there were some 251 IMAX theaters in operation across Greater China, the area covered by China, Hong Kong, Macau and Taiwan. The company has a further 217 screens on order from major clients including Wanda Cinema Line, CJ-CGV and Shanghai United.

On Tuesday, IMAX revealed a two-screen revenue sharing deal with first time client Better Life Commercial, and a five-screen deal with existing revenue share partner SMI Holdings (aka Stellar). The deal will  expand Stellar’s IMAX circuit to 16 theaters when fully built.

The pre-IPO filing pointed to massive growth in the mainland Chinese theatrical business, and a forecast that China’s gross box office would overtake that of North America in 2017.

It also showed considerable change within IMAX China’s business. The company plans to cut the number of theaters that are sold outright and to press for more theaters to be installed that work on a revenue sharing basis. That means higher upfront costs for the company, but a larger share of gross box office revenues over many years.

Other turbulence may come from a new internal management system (“enterprise resource planning”), the withdrawal of certain subsidies for Chinese film production, and the revision of film import quotas at the end of 2016. (In 2012 China’s film import quotas were expanded from 20 to 34 with the addition of 14 IMAX films per year.)

Growing competition may come from IMAX China’s own handful of customers. The company says that rival non-conventional screen system deployed in China include 4DX at CJ-CGV, X-Land by Wanda and China Giant Screen by China Film Group.

The company will also register a substantial net loss of US$68 million in the first half of the current year, following a US$77 million non-cash write-off relating to the revaluation of a convertible option. The company says that without write-down the adjusted profits would have been US$18.3 million in the six months to June, compared with $8.64 million in the same period last year.

The pre-listing filing also revealed that the company is building its own digital remastering facility in China that is intended to open by the end of the year. This will allow it to convert more local Chinese films into the large screen format, helping the company benefit as local Chinese movies flourish at the box office.

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