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China’s Huayi and Tencent Prepare Vehicle for Deals in Hollywood, Korea

Annual results for China Jiuhao Health, being taken over by entertainment giants Huayi Brothers and Tencent as a vehicle for foreign acquisitions, reveal it to be an almost perfectly clean shell company.

The only flaw revealed by Jiuhao’s 2015 annual results announcement, is that one of its non-executive directors is shown to have been detained by Chinese police for more than a year.

“For the reason of assisting relevant Mainland authorities in their investigation since January 2015, Mr. Wei Xin did not attend any general meetings of the company held in 2015,” Jiuhao said on page 44 of a regulatory filing on Friday.

The company, which is listed on the Hong Kong Stock Exchange, says it is now on the lookout for acquisitions in Hollywood and Korea.

Jiuhao recorded a loss of US$64.1 million (HK$497 million) in 2015, with most of that — US$47 million (HK$364 million) — attributable to the health, golf club, and hotel operations that will not be continued by the new controlling shareholders. These were sold at a loss in October.

According to the filing, the ongoing company has no debt and cash balances of $36 million (HK$280 million.) Jiuhao will still hold on to a health club in Beijing’s Chaoyang district and a diabetes treatment operation, as well as a loss-making travel channel (HNTV.) The ongoing businesses had revenues of $15.7 million (HK$122 million) and recorded 2015 losses of US$17.0 million (HK$132 million.) The company’s fate however seems substantially different.

Huayi, one of China’s top studio conglomerates, and Tencent which has expanded into entertainment from its leading position in Chinese social media, recently indicated that the company, soon to be renamed Huayi Tencent Entertainment Company Limited, will be their primary vehicle for acquisitions outside China.

Huayi currently controls 18.2% of the company, Tencent 15.7%. Five other companies, including a unit of Alibaba, acting in concert, own a further 16.8%, creating a controlling group with 51% ownership. Huayi co-chief Dennis Wang Zhongjun became Jiuhao’s chairman on Feb. 5.

“(Huayi Tencent Entertainment) sets out to establish a global presence, further build on our audience base in the Greater China region, and to seek opportunities to invest in domains featuring quality international contents, with a view to becoming a leader in the production and distribution of international projects,” it said in the documents.

“The entire net proceeds of approximately HK$527 million (US$68 million) arising from the subscription of new shares of the company by investors including Huayi Brothers and Tencent will be used to expand the media and entertainment business of the Group and to invest in various productions of international films and animations projects.

“In addition, the Group will also actively seek investment and acquisition opportunities in the international film-production and entertainment market, in particular, focusing on the Korean and Hollywood markets.”

Those two markets are no co-incidence. The filing claims that “Chinese-U.S. co-productions” (presumably including “Furious 7,” “Terminator Genisys” and “Mission: Impossible — Rogue Nation,” which each included minority Chinese investments) accounted for 24% of China’s theatrical box office last year. Korean movies and talent agencies are proving to be great sources for Chinese remakes and cross-border ventures.

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