STX Entertainment has dropped its plans to list its shares on the Hong Kong Stock Exchange, some six months after it filed a draft prospectus. The company had sought to raise up to $500 million of new capital and achieve a market valuation of over $3 billion.
The IPO plans were shaped by shaped by sponsors Goldman Sachs and JP Morgan and filed on April 26. That filing lapsed on Thursday, Oct. 25. Hong Kong Stock Exchange now shows the filing as having moved from the active column, to “inactive” status.
In the six months since STX notified the local market regulators of its flotation plans, the Hong Kong share market has dropped by over 20%. Equities in Asia have been dragged down by turbulence in mainland Chinese equity markets, and by the U.S.-China trade war.
“We were pleased with how well the process was moving forward, and having received HKEX approval of our application, we had a clear line of sight for listing,” CEO Robert Simonds told employees in an internal email.
“The market and political conditions in the (Asia) region have significantly deteriorated with the Hang Seng trading down 24% from its high and 17% on the year. TMT (Tech, Media and Telecomms) stocks in particular, have been hammered with many trading down more than 50%. Given that we have a strong balance sheet, we have the benefit of time to wait out the volatility and unpredictability, and accordingly, have allowed our application on the HKEX to lapse,” the email continued.
STX’s options now include the refiling of a new prospectus in Hong Kong, or seeking a listing elsewhere, most likely New York. Simonds also suggests that there are other options.
“Through this (IPO) process we met with and received strong institutional support from investors around the world, who approached us with two very compelling opportunities that we frankly find more attractive and value-creating than listing in Hong Kong. While we can’t share details at this point, you should know we are actively engaged in one exciting process, which when done, will be transformative to our business. We feel very positive about where we are, especially coming off of ending fiscal 2018 more than doubling our revenue across all lines of business, with positive cash flow and over $160M of cash on our balance sheet,” Simonds said.
While the New York listing route might provide access to a deeper pool of capital and of investment analysts with greater knowledge of the entertainment sector, that choice would represent a distortion of the company’s long held ambitions to be a player in Hollywood and in Asia.
Founded by Simonds, the company always had an eye on Greater China, both as a source of capital and as a marketplace and source of business partners. Hony Capital, run by the highly respected financier John Zhao, is STX’s second largest shareholder with a 22% stake. Chinese social media giant Tencent and Hong Kong media empire PCCW have a combined 6.2% equity stake.
“We do not simply export Hollywood content into China. Rather we aim to integrate China into the development process in a meaningful way. Our partnership-based approach is to marry Hollywood’s storytelling know-how and global distribution with prominent media players creating content across platforms in China,” the STX prospectus asserts. And it cited the example of “The Foreigner,” one of the most successful U.S. Chinese co-productions ever seen, as an example of its smarts.
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