Film company bid to raise cash creates selling wave
National Arts offers to sell rights shares at huge discount, creating unhappiness among smallinvestors and causing a 26.4pc stock price drop
Shares of National Arts Holdings, a film producer and distributor, plunged 30.2 per cent at one stage yesterday on news it would price a rights issue at 10 HK cents per share - a discount of 81 per cent to Thursday's close.
Its investors include chairman and controlling shareholder Checkley Sin Kwok-lam, a former managing director of Wing Hang Credit.
National Arts told the Hong Kong stock exchange it hopes to raise between HK$325 million and HK$370 million. It said that assuming a minimum amount of HK$312 million was raised, net of expenses, HK$170 million would be used to reduce debt and the rest would be for working capital.
The shares closed 26.4 per cent lower at 39 HK cents, while the benchmark Hang Seng Index rose 0.15 per cent.
"The small shareholders are dumping shares of National Arts, because apparently the company is not making profits for the shareholders - instead it is raising funds from them," said Francis Lun Sheung-nim, the managing director of Lyncean Securities.
Sin and his wife will take up 787 million, or 24.25 per cent, of the rights shares, for HK$78.7 million.
Lun said: "I think they have to buy the shares themselves, as the investors won't open their wallets for them."
He expected the stock of National Arts to linger at low levels in the next week on weak demand.
In 2010, the company made a kung fu film, The Legend is Born - Ip Man, riding on the success of a 2008 blockbuster produced by Mandarin Entertainment.
Ip was a renowned wing chun martial arts expert who taught Bruce Lee.
The 2008 movie starred well-known actor Donnie Yen as Ip, while the one by National Arts starred Dennis To Yu-hong, a new face, to save costs.
The mainland and Hong Kong are the major target markets of National Arts, according to the firm's website.
Yen's Ip movie took in more than HK$100 million at the box office on the mainland, while The Legend is Born achieved less than 20 million yuan (HK$24.8 million) - not bad for a low-budget film, according to domestic industry reports.
Lun said that there was little chance for most filmmakers to recover their costs in a movie production.
"The movie stars make a lot of money, but few investors are able to make a profit," he said.
Besides, it is not easy for Hong Kong movies to get past mainland censors to reach the vast audience, Lun said.
"Usually they will be required to cut some scenes or lines to meet the standards on the mainland," he said.
Before expanding into the entertainment industry, Sin was a veteran banker and was director and general manager of Wing Hang Credit.
He is also chairman of Hong Kong-listed First Credit Holdings, a company he co-founded in 2007 to grant loans to small enterprises and individuals.