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Chinese film venture drops stock offering

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Penetrating the Chinese movie market has long presented any number of challenges to Hollywood studios, from quotas to censorship to cultural sensitivities

Add raising money to the list of potential problems.

Legendary East, the Chinese film venture established this summer by film finance and production company Legendary Entertainment and its chairman, budding Hollywood mogul Thomas Tull, has canceled plans to raise $220.5 million on the Hong Kong Stock Exchange this year after it was unable to find enough investors.

A spokeswoman said the company would try again next year.

In a regulatory filing, Paul Y. Engineering Group, which Legendary East had planned to use as a shell company to offer public shares, said, “Although the placing has received a positive and substantial response, it was not sufficient to complete the placing.”

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The filing blamed “current difficult conditions of the capital markets” along with “volatility in the global markets.”

Under Paul Y. Engineering Group’s agreement with Legendary East, the funds had to be raised before the end of the year or the deal would be terminated.

Legendary, which has co-financed “The Dark Knight” and “The Hangover,” is one of two Hollywood movie companies to form a Chinese joint venture this year. Independent studio Relativity Media, maker of “Immortals” and “Limitless,” also formed a joint venture in China this summer. The first move by that venture was to put money into Relativity’s upcoming comedy “21 and Over,” part of which was shot in China.

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At the same time, the major Hollywood studios are aggressively lobbying to relax China’s quota on foreign movies to get a piece of one of the world’s fastest-growing movie markets, where box-office receipts surged more than 30% this year and will surpass $2 billion for the first time, according to a government report.

China’s government currently allows the distribution of only about 20 foreign movies on a revenue-sharing basis, and takes more than 80% of box-office revenue. (Another 20 or so are sold for a flat fee to state-controlled Chinese distributors.) Partnerships and joint ventures allow film companies to get around the quota and keep more of the revenue that their productions generate. However, it also forces them get the approval of government censors before shooting.

Legendary East intends to produce one or two English-language movies a year in China based on local culture that would be distributed globally, much like big-budget event films made in Hollywood. Its first project is expected to be “The Great Wall,” which will be directed by Edward Zwick, who did “The Last Samurai,” and tell the history of China’s famous stone structure.

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The company was looking to launch operations with the $220.5 million that it would offer in exchange for 50% equity in the company. An additional 40% would be owned by Legendary Entertainment, with the remaining 10% going to distribution partner Huayi Bros. International. Legendary East also expected to get $35 million from a private equity firm controlled by its chief executive, Kelvin Wu, and to raise a $225-million credit facility.

Tull is chairman of Legendary East.

If funding is delayed too long, it could cause problems for the venture’s plans to start making movies in 2013.

ben.fritz@latimes.com

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