When villains in movies torture the hero, they usually give a lengthy account of their elaborate plans. Investors in Alibaba Pictures get no such thing. The film-making unit of China’s biggest e-commerce group is raising HK$12.2 billion ($1.6 billion), diluting existing holders and leaving the company effectively a loss-making cash shell. Shareholder value gets only a walk-on role.
Since Alibaba bought its controlling stake in what is now Alibaba Pictures last March, it has snipped, restructured, written down assets and raised new funds. While cameras are now rolling on some big productions, the company is mostly a pile of cash. After placing new shares equivalent to a fifth of its current equity base, the group’s acquisition war chest will account for more than 90 per cent of pro-forma assets of $2.6 billion. The market currently values those assets at around four times face value.
Whether Alibaba Pictures can spend that wisely is a matter of faith. Buying some of its parent company’s film-related assets has been mooted, but has yet to happen, and is only “likely” to be disclosed to investors anyway. The company’s most recent purchase was a Chinese state-owned software company that processes cinema ticketing, which sounds promising. Yet the terms of the new capital raising suggest that pleasing public shareholders isn’t front of mind. Shares were sold to around 40 investors, many of them mainland Chinese individuals, according to people familiar with the situation, at an 18.9 per cent discount to the previous closing share price. Even though the shares dropped 10 per cent by midday on June 4, the new investors are still sitting on a $200-million paper profit.
Minority investors tend to give Alibaba the benefit of the doubt. Alibaba Pictures may yet become China’s answer to a global production studio. The strategy of using the bigger group’s vast data on consumer spending habits and product preferences to create plots for films is exciting, if a little depressing from a creative perspective. It’s just that the lack of proper explanation is becoming a tired storyline in too many of Alibaba’s investments.
Since Alibaba bought its controlling stake in what is now Alibaba Pictures last March, it has snipped, restructured, written down assets and raised new funds. While cameras are now rolling on some big productions, the company is mostly a pile of cash. After placing new shares equivalent to a fifth of its current equity base, the group’s acquisition war chest will account for more than 90 per cent of pro-forma assets of $2.6 billion. The market currently values those assets at around four times face value.
Whether Alibaba Pictures can spend that wisely is a matter of faith. Buying some of its parent company’s film-related assets has been mooted, but has yet to happen, and is only “likely” to be disclosed to investors anyway. The company’s most recent purchase was a Chinese state-owned software company that processes cinema ticketing, which sounds promising. Yet the terms of the new capital raising suggest that pleasing public shareholders isn’t front of mind. Shares were sold to around 40 investors, many of them mainland Chinese individuals, according to people familiar with the situation, at an 18.9 per cent discount to the previous closing share price. Even though the shares dropped 10 per cent by midday on June 4, the new investors are still sitting on a $200-million paper profit.
Minority investors tend to give Alibaba the benefit of the doubt. Alibaba Pictures may yet become China’s answer to a global production studio. The strategy of using the bigger group’s vast data on consumer spending habits and product preferences to create plots for films is exciting, if a little depressing from a creative perspective. It’s just that the lack of proper explanation is becoming a tired storyline in too many of Alibaba’s investments.