Pan-Asian cinema operator Orange Sky Golden Harvest has agreed to sell its theaters in mainland China to Dadi, China’s second-largest exhibition group.
The sale is one of the clearest signs yet of the pain being inflicted on China’s cinema sector by last year’s abrupt box-office slowdown. Theatrical receipts in China grew by less than 4% to $6.62 billion (RMB45.7 billion) in 2016, while admissions grew by 8%.
Hong Kong-listed investment firm Nan Hai, Dadi Digital Cinema’s parent company, is to pay $475 million (RMB3.28 billion) for 93% of OSGH’s China business. The China division has 76 theaters in China with a total of 531 screens. At the end of 2016, Dadi reported operating 350 theaters in 164 towns and cities. They had a combined 1,911 screens.
The sale will leave OSGH as an operator of a small circuit of wholly-owned cinemas in Hong Kong, a majority owner of the Vie Show chain in Taiwan, and a 50% joint-venture partnership in the Golden Village cinema chain in Singapore.
OSGH was one of the first Hong Kong groups to build cinemas in China, using the Closer Economic Partnership Agreement, which allows Hong Kong firms to control majority stakes, unlike foreign companies, which are restricted to minority positions. The Chinese business was by far OSGH’s biggest division in terms of cinema numbers and investment. But, despite several years of strong box office growth in mainland China, OSGH China consistently lost money.
A regulatory filing by Nan Hai showed that although the circuit’s revenue went up from US$105 million (HK$817 million) in 2014 to US$129 million (HK$996 million,) losses escalated almost as fast. After-tax losses were $4.27 million (HK$33.1 million) in 2014, rising to US$21.2 million (HK$164 million) in 2015.
Last September, OSGH cut back on its expansion in China and scaled back plans to bring in $59.7 million (RMB400 million) from outside investors. The investors being dropped are Beijing Weiying (aka Wepiao), one of China’s largest online ticketing companies, and media investor Beijing Qing Zhong Tong Chuang Asset Management. At the time it blamed the cutback on changed circumstances and the unit’s losses in China as due to competition, incubation and finance costs.
Dadi itself has recently sought the financial support of outside investors. Last year it sold $154 million of convertible bonds to Alibaba Pictures Group. And this month Huayi Brothers Media confirmed that it had paid $11.5 million for a 4.6% stake in Dadi.