Bona Film Group prepares for IPO and stock market return

Bona Film Group, one of the most consistently successful private sector film studios in China, is in the final stages of an IPO on the Shenzhen Stock Exchange. The company was behind The Battle of Lake Changjin, the highest-grossing film of all time in China, last year.

The IPO move represents a return to public company status for a company that was often ahead of its time.

Bona was in the early wave of Chinese companies to list their shares in the US, achieving an IPO on the NASDAQ stock exchange in 2010 in hopes that US investors and financial markets would have a better understanding of a media business – and Bona therefore would agree a higher valuation than if it were listed in Hong Kong or mainland China.

When the adventure failed to deliver the expected boost, Bona became one of the first Chinese companies to exit US securities markets. Yu Dong, the company’s talismanic founder, a distributor-turned-producer, took Bona private in 2015 with the help of media and tech investors. He is understood to have tried on several occasions to get Bona a new listing on either Hong Kong or a mainland China stock exchange.

In a flood of around 50 regulatory filings, including a 735-page prospectus and a 113-page executive summary, the company has now laid out the details of its new launch.

The company will sell 275 million new shares in an offering backed by mainland blue chip firms China Dragon Securities and CITIC Securities. The amount of the new capital will not be announced until the sale price of the shares is announced later this week. The counter is scheduled to start trading on Tuesday next week.

Yu is the largest shareholder with 28%. Alibaba and Tencent, involved in the 2015 delisting operation, also have large equity holdings.

While other Chinese film companies have warned of hot weather — Huayi Bros. has suffered losses for three years and Wanda Film recently warned of $85 million in losses in the first half of this year — Bona has boosted its profitability on the back of its strong patriotism Boost your spirits title. Revenue rose 82% to RMB1.47 billion (US$217 million) in the six months ended June. Revenue increased fivefold to RMB 310 million (US$45.8 million).

Bona’s decision to exit US stock markets, where Chinese firms long ago fell out of favor with investors, may now be followed by other, far larger firms.

Alibaba, which once held the record for the largest IPO on the New York Stock Exchange, last week filed to convert its secondary Hong Kong listing into a joint initial listing. The detail matters.

On the one hand, Chinese companies are under increasing pressure to comply with US accounting standards if they want to retain access to America’s organized capital markets. But they are also constrained by Chinese regulations aimed at limiting the transfer of data outside of China. Both countries have national security concerns about their presence in the US

Alibaba’s decision to have a common primary listing in Hong Kong is intended to ensure that it retains public company status and investors can continue to trade the shares if it is ever forced to leave the US

The move also has a second, significant benefit, as the Hong Kong primary listing will enable the buying and selling of Alibaba shares via Stock Connect, a mechanism that enables two-way trading of mainland China and Hong Kong stocks and mutual funds. Until that happens, most ordinary private investors in China will be unable to invest in the country’s most iconic private sector company.

In response to the news, Alibaba shares initially surged. But it later slipped again as it became clear that tensions between China and the US were not abating and that the Chinese economy had slowed significantly.