SMI Culture shares plunge 51pc on capital shake-up

PUBLISHED : Monday, 11 August, 2014, 2:55pm
UPDATED : Tuesday, 12 August, 2014, 12:03am

Shares of SMI Culture Group Holdings finished 51.4 per cent lower yesterday on its first day of trading after the media company announced a share consolidation and rights issue to fund the acquisition of a film production company in Beijing from its major shareholder.

SMI closed at 51 HK cents, having touched a new 52-week low of 48.5 HK cents during the session. Trading in the stock had been suspended for two months since June 11 pending a "possible acquisition and possible fundraising exercise".

Before trading was halted, SMI's shares soared 56.7 per cent to a three-month high of HK$1.05 on speculation mainland internet giant Tencent Holdings planned to take over the firm.

The main aim is to dilute the stake held by minority shareholders

The company has proposed consolidating every two shares into one. It also plans to issue rights shares at 35 HK cents each. The rights shares will be allotted on the basis of eight for every consolidated share.

"The main aim is to dilute the stake held by minority shareholders," Lyncean Securities managing director Francis Lun Sheung-nim said. Lun said the investment in Grand Astute was only a ploy to dilute the stock and suppress the share price. "Then the large shareholder will have the opportunity to buy back the stake at a lower price."

SMI said it would use HK$360 million - nearly half of the HK$761 million that it will raise from the rights shares - to acquire a 35 per cent stake in Grand Astute, which is owned by SMI's major shareholder, mainland businessman Qin Hui. An additional HK$350 million would be used to invest in the production of films and television programmes, it said.

Grand Astute holds a 90 per cent stake in a company that owns two pieces of land in the remote Huairou district of Beijing and a complex on the site engaged in film investment and production of television programmes.

Daniel So, a strategist at CMB International Securities, said investors were interested because everyone had seen the potential of the film and entertainment industry on the mainland.

"With the increase in consumption power on the mainland, entertainment-related industries offer huge room for imagination," So said. "However, the question is, who is going to profit from it?"