Shares of Hong Kong-listed SMI Culture Group plunged more than 50% during trading yesterday, after the company announced a share consolidation and rights issue to fund the acquisition of Beijing-based production company Grand Astute.
SMI Culture’s shares closed at HK$0.51 on Monday, August 11, which marked the company’s first day of trading since June 11. The company’s shares were suspended from trading for two months after it announced a “possible acquisition and fundraising exercise”.
The company plans to raise HK$788m by consolidating every two shares into one and issuing new shares at HK$0.35. It would then use around half the proceeds, or HK$360m, to acquire a 35% stake in Grand Astute, which is owned by SMI Culture’s major shareholder Qin Hui. Remaining proceeds would be used to invest in film and TV production and to repay debt.
However, Lyncean Securities managing director Francis Lun told the South China Morning Post he believed the move was aimed at diluting the stake held by minority shareholders and reducing the company’s share price. “Then the large shareholder will have the opportunity to buy back at a lower price.”
Before trading was halted in June, SMI Culture’s shares had surged to a three-month high following press speculation that mainland internet giant Tencent planned to acquire the company. SMI Culture denied the rumours.
SMI Culture’s sister and associate companies include SMI Corporation, which is a major exhibitor in mainland China, and film and TV producer Stellar Megamedia.