After years of setbacks, the state-run film and TV giant China Film Group announced on Wednesday that it plans to raise more than $600 million in an initial public offering next week.
If successful, it would be the largest IPO ever for China's entertainment industry.
According to documents filed Wednesday, China Film Co, the distribution arm of China Film Group, intends to list on the Shanghai Stock Exchange and sell up to 467 million shares, according to Deadline.com. The funds will be used to finance theater development and production as well as paying down debt. The parent company will also see its ownership share reduced from 93% to 67%.
China Film exclusively handles the import of foreign films to mainland China and distributes them through Huaxia, a smaller state-run entity. But in recent years, the company has expanded beyond importing Hollywood movies to co-producing or investing in foreign films such as the 2010 "Karate Kid" remake, Universal's "Furious 7," and the recent 3D blockbuster "Warcraft" from Legendary Entertainment.
In its filing with the Shanghai stock exchange, the company said net profits rose from around $75 million in 2013 to $157 million in 2013. It also distributed 790 domestic films and 223 foreign films between 2013 and 2015, taking up a market share of more than 58%.
Although China's economy has begun to slow down, box office revenues reached double-digit growth in recent years thanks to a increased cinema construction, rapid urbanization, and rising disposable incomes.
However, China Film's dominant position is being threatened by competitors from the private sector, including Huayi Bros., Bona Film, and Dalian Wanda. China Film Group said that, in the past three years, it has been the producer or production partner on 66 films with a box office share of approximately 17%.
The company noted in its filings that profits fell below expectations in recent years, admitting that newcomers to the industry have "brought new funds to the industry and have performed excellently."
Zhou Zhengbing, a professor at Beijing's Central University of Finance and Economics, said that while Beijing has given China Film an import monopoly and other special advantages, the company has increasingly struggled to remain competitive.
"A lot of celebrities and talented people in the film business, they want to partner with private companies because those companies can offer them benefits like stock, or help them set up their own [production] entities," Zhou said, adding that a listing on the Shanghai exchange may help give China Film an edge over its privately run competitors.
China Film has been angling for an IPO for more than 10 years, but Zhou noted that such a listing is a complex process for state-run enterprises. In addition, Beijing suspended IPOs for months in 2015 due to intense market volatility.
China's entertainment companies are increasingly looking overseas for growth. Legendary was purchased earlier this year for $3.5 billion by Dalian Wanda Group, a major real estate developer that owns the mainland's largest movie theatre chain as well as AMC Theaters.
Hollywood studios have also started looking eastward as well, including Dreamwork Animation's Shanghai-based Oriental Dreamworks joint venture and Warner Bros.' recently established Flagship Entertainment.