STX Entertainment has dropped its plans to list its shares on the Hong Kong Stock Exchange, six months after it filed a draft prospectus. The company had sought to raise up to $500 million of new capital and achieve a market valuation of more than $3 billion.
The IPO plans were shaped by sponsors Goldman Sachs and JP Morgan and filed on April 26. That filing lapsed Thursday (Oct. 25). The Hong Kong Stock Exchange now shows the filing as having moved from the active column to “inactive” status.
STX had hoped to become the first U.S.-based entertainment business to list on the Hong Kong exchange, with an IPO expected to take place during the summer. But in the six months since STX notified local market regulators of its flotation plans, the Hong Kong share market has dropped by more than 20%. Equities in Asia have been dragged down by turbulence in mainland Chinese equity markets and by the U.S.-China trade war.
“We were pleased with how well the process was moving forward, and having received HKEX approval of our application, we had a clear line of sight for listing,” CEO Robert Simonds told employees in an internal e-mail.
“The market and political conditions in the (Asia) region have significantly deteriorated with the Hang Seng trading down 24% from its high and 17% on the year. TMT (Tech, Media and Telecomms) stocks, in particular, have been hammered with many trading down more than 50%. Given that we have a strong balance sheet, we have the benefit of time to wait out the volatility and unpredictability, and accordingly, have allowed our application on the HKEX to lapse,” the e-mail said.
STX’s options now include the filing of a new prospectus in Hong Kong or seeking a listing elsewhere, most likely New York. In his e-mail, Simonds also suggested that there were other options.
“Through this (IPO) process we met with and received strong institutional support from investors around the world, who approached us with two very compelling opportunities that we frankly find more attractive and value-creating than listing in Hong Kong,” Simonds said. “While we can’t share details at this point, you should know we are actively engaged in one exciting process, which when done, will be transformative to our business. We feel very positive about where we are, especially coming off of ending fiscal 2018 more than doubling our revenue across all lines of business, with positive cash flow and over $160M of cash on our balance sheet.”
While a New York listing might provide access to a deeper pool of capital and of investment analysts with greater knowledge of the entertainment sector, that choice would represent a skewing of the company’s long-held ambitions to be a player in Hollywood and in Asia.
Founded by Simonds, the company always had an eye on Greater China, both as a source of capital and as a marketplace and source of business partners. Hony Capital, run by the highly respected financier John Zhao, is STX’s second largest shareholder, with a 22% stake. Chinese social media giant Tencent and Hong Kong media empire PCCW have a combined 6.2% equity stake.
“We do not simply export Hollywood content into China,” STX’s Hong Kong IPO prospectus said. “Rather we aim to integrate China into the development process in a meaningful way. Our partnership-based approach is to marry Hollywood’s storytelling know-how and global distribution with prominent media players creating content across platforms in China.”
The prospectus cited the example of “The Foreigner,” one of the most successful U.S. Chinese co-productions ever seen, as an example of its smarts.