Imax sells 20 pct of its China business

Imax Corp, the world's leading giant-screen theater operator, plans to sell a 20 percent stake in its Chinese business to two China-focused investment companies in an $80 million deal to pave the way for expansion and an anticipated initial public offering in the China market, according to a report in The Wall Street Journal on Tuesday.

Richard Gelfond, chief executive officer of Imax Corp, said in an interview that China Media Capital, an investment fund launched in 2009, and private-equity firm FountainVest Partners would pay $40 million each to purchase 10 percent of the stake by early 2015, said the report.

The investors will help to pave the way for a public offering of shares of the China operation - Imax China Holding Inc - in the next five years, said Gelfond.

As a wholly owned subsidiary of the Canada-based giant movie screen manufacturer Imax Corp, Imax China was established in September 2011 to better capitalize on the opportunities in the world's second-largest movie market.

Imax China is planning to go public in Hong Kong, but will also consider the possibility of listing on other Chinese exchanges, such as in Shanghai, in case that doesn't work out or a better opportunity arises on the Chinese mainland, according to a spokeswoman for the company.

An IPO will facilitate an increase in the number of screens Imax Corp runs across China beyond the current 150, said Gelfond. Imax Corp plans to open more than 200 screens in the next five years in China, which has already become its critical growth market and is set to become its largest market.

In North America, it currently operates 340 screens.

"To a certain extent, the partnership with the two China-focused investment groups will help to boost Imax Corp's expansion in the China market, which is experiencing fierce competition in the giant movie screen market," said Chen Shaofeng, deputy director of the Institute for Cultural Industries at Peking University.

"The stake involvement would make them more active in developing expansion opportunities in the market."

China Giant Screen, a Chinese version of the big movie screen product, co-developed by State-owned China Film Group Corp and GDC Technology Ltd, a Hong Kong-headquartered digital cinema equipment maker backed by the Carlyle Group, has become a major rival of IMAX in China, with a comparatively low ticket price and a rapid pace of expansion.

It officially entered the business in April 2012.

Moreover, Poly Film Investment Co Ltd, a wholly owned subsidiary of the State-owned China Poly Group Corp, formally introduced its internally developed giant-screen projection system known as PolyMax in June last year.

Both China Giant Screen and PolyMax systems have cost advantages over IMAX.

"Under the circumstance of the increasing competition from domestic rivals, Imax Corp might need to think about the issue of lowering the cost of its giant screen products and related projection system in the future," said Chen.

Imax Corp generated $56.5 million in China last year, up 26 percent year-on-year, while the North America market witnessed a 6.5 percent decline from a year earlier to $136.2 million.

Imax Corp yielded $287.9 million in global revenue in 2013, increasing 1.8 percent compared with the previous year, according to its financial report.

"I think in the next three years, the growth potential for giant movie screens in China will maintain strong momentum," said Chen.