IPOs: Imax HK IPO Plan Should Prompt Int’l Board Re-Think
Bottom line: China’s securities regulator should reopen its plan for an international board amid the current stock market rally, which would make big international brands like Imax available to average local investors.
A premier global movie brand slipped away from China’s stock exchanges last week, when the Chinese unit of big-screen superstar Imax (NYSE: IMAX) disclosed it plans to make an initial public offering (IPO) in Hong Kong. The case brought back memories of a nearly forgotten plan by China for an international board for such listings in Shanghai, aimed at making big foreign names accessible to Chinese investors.
That plan was conceived more than 5 years ago, but later got put on hold as China focused on launching the Nasdaq-style ChiNext board in Shenzhen. It then got indefinitely shelved when China’s stock markets languished in the 4 years after that.
With China’s stock markets now in the midst of a massive rally that have seen them more than double over the last year, the securities regulator should reconsider the plans for an international board, which could offer up premier global names like Imax for local investors. Other big names like British banking giant HSBC (HKEx: 5; London: HSBA) and German business software maker SAP (Frankfurt: SAP) have also said they would consider listing on such a board.
China has partly addressed the lack of access to big global names for local investors through the recent launch of the Hong Kong-Shanghai Stock Connect program, which makes big Hong Kong-traded names like HSBC and Prada (HKEx: 1913) available to some China-based investors. But the vast majority of big global names that have profited from the China growth story still remain out-of-reach for most Chinese investors — a situation that the neglected international board plan could change.
Imax is a top global maker of movie screening technology, and has invested heavily in China over the last 5 years as the country zoomed to become the world’s second largest box office. Last year China’s box office grew 36 percent to 29.6 billion yuan ($4.8 billion), and is on track to overtake the slower growing US in the next few years.
One of Imax’s biggest partners is Wanda Cinema Line (Shenzhen: 002739), which accounts for half of the company’s 239 signature big-screen theaters in China. Last year it also formed a joint venture with TV giant TCL (HKEx: 1070; Shenzhen: 000100), and also sold 20 percent of its China unit to 2 Chinese private equity partners.
At the same time that it sold that stake, which valued the company at $400 million, Imax also said its local unit planned to make an IPO in China within the next 5 years. (previous post) But the company made a detour in that road map with its IPO plan that was disclosed last week. That plan will see Imax China list in Hong Kong, which already hosts a wide range of mainland companies and became accessible to some mainland Chinese investors last year through the Hong Kong-Shanghai Stock Connect program. (English article)
Imax didn’t disclose any fund-raising plans in its filing, but did reveal how important the China market has become for the company. It said the profit for its China unit grew 30 percent last year to $22.6 million, while its revenue grew 40 percent to $78.2 million. It added it had commitments to nearly double its theater count in China by adding another 219 screens over the next few years.
The recent launch of the Hong Kong-Shanghai Stock Connect link may have swayed Imax to abandon China for Hong Kong for its IPO, though that program is currently limited to wealthy Chinese investors. When Imax announced its earlier intent to list in China, its target may have been the international board that was once a cause for excitement among foreign companies with big business in China.
The board was first discussed with much fanfare as early as 2009, before later getting shelved during the ChiNext launch that year. It was then mothballed indefinitely as Chinese stock markets stagnated between 2010 and the first half of 2014. In addition to global names like HSBC and SAP, big Hong Kong-listed Chinese names like Lenovo (HKEx: 992) and China Mobile (HKEx: 941; NYSE: CHL) have also said they would like to list on such a board, since their technical status as overseas-domiciled prohibits them from listing in China.
Previous reasons for delaying the international board have largely disappeared, since China’s stock markets have rallied strongly over the last year and the ChiNext is already well established. In light of those changes, the securities regulator should re-examine the original plan, and move quickly if it feels such a plan can be quickly executed. Otherwise, most of the foreign companies that have thrived on the China growth story will continue to remain out of reach for average Chinese investors.
Related posts:
