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China media firm fund-raising curbed by fine print

BEIJING () -- China's media companies itching for access to capital markets are getting no relief from regulators who've decided to monitor recent fund-raisers before allowing more.

Two companies -- Hangzhou-based publisher Zhejiang Daily Media Group Co. Ltd. and southern China's Guangzhou Daily Newspaper Group -- raised money through back-door listings on domestic exchanges. Guangdong Nanfang Media Group Co. Ltd. and Shandong Dazhong News (Group) Co. Ltd. sold medium-term bonds to undisclosed financial institutions.

In addition, the website of the Communist Party newspaper People's Daily raised 1.34 billion yuan ($212 million) (USDCNY) through an initial public offering in April on the Shanghai Stock Exchange.

Industry watchers had expected these successful fund-raisers by leading publishers, each linked to the government, to pave the way for many more initial public offerings by companies with newspaper, magazine, broadcast and online information interests.

But officials at the China Securities Regulatory Commission (CSRC), the gate-keeper for all IPOs and back-door listings, and the General Administration of Press and Publication (GAPP), the central government's publisher watchdog, have chosen to approach future fund-raisers with caution.

Even the government's official wire service, Xinhua, has yet to set a timetable for a plan for an IPO on the Shanghai bourse for its Xinhuanet online service.

IPOs have long been on business agendas at regional newspaper groups, such as the publisher of the Liaoning Daily, but none have bothered to apply for regulator permission, said Zhang Yabo, media director for a division of the Orient Securities brokerage.

A source at another broker said listing has long been a goal for Nanfang Media Group's executives. But regulators rejected their bid last year, and now that Guangzhou Daily beat it to the punch "it's impossible for another firm doing similar business and from the same region to go public so soon," he said.

A source close to regulators agreed that CSRC is "limiting the number of traditional media companies that can go public. If multiple news publishing companies from the same region apply to list, it would be impossible for all to be approved."

Regulators now want to see how Zhejiang Daily -- which holds a stake in Caixin Media Co. Ltd., publisher of this magazine -- and Guangzhou Daily are affected by their fund-raisers in September 2011 and April 2012, respectively, before considering requests from other companies, Zhang said.

Regulators "are sensitive to traditional media going public," Zhang said, without elaborating. He also noted the central government does not want "large numbers" of media companies to launch IPOs.

All media outlets on the mainland are subject to government propaganda controls, although not all serve as official mouthpieces.

Zhejiang Daily got on the Shanghai Stock Exchange through a CSRC-approved reverse merger with a detergent and toothpaste company called Shanghai WhiteCat (Group) Co. Ltd.

Shares in Zhejiang Daily peaked at more than 21 yuan last November and have hovered around 15 yuan since mid-May.

Guangzhou Daily rode onto the Shenzhen Stock Exchange aboard a reverse merger tied to an advertising company called Guangdong China Sunshine Media Co. Ltd.

By issuing bonds on China's interbank market, whose participants range from insurance companies to banks, Nanfang Media raised 350 million yuan and Dazhong News secured 500 million yuan.

There had been speculation that each newspaper group issued bonds as a first step toward a public listing. But skeptics doubt any of the companies -- leaders among China's traditional media outlets -- would be able to launch an IPO because the sector is not showing great growth potential as reflected by the two firms' fluctuating revenue and profits during the past three years.

As a result, private investment channels are a more likely financing route for these companies in the near term.

"Dazhong News may be counting on obtaining the capital it needs by introducing private equity investors and other forms of investment," a source close to the company said.

The source also said Dazhong News executives "once hoped to take advantage of a CSRC pilot program to spin off and list its Peninsula Metropolis Daily newspaper, but the plan didn't pan out."

Profit stress

Regulatory restrictions are not the only obstacles facing media firms hoping to raise money on the stock market. Many are worried about profitability and various challenges to their basic business models given the changing media landscape.

For example, paper prices are rising for newspaper groups even as ad revenues are falling. Forty percent of the funds for Dazhong News and 57% of those raised by Nanfang Media are slated to be used to replenish stocks of printing paper.

The pressure on ad revenues has been mounting since the beginning of the year due to slumping domestic markets for real estate and autos.

"In the first quarter, advertising revenue for the overall newspaper industry declined," said a senior media analyst.

The bond prospectus for Nanfang Media said ad revenues contributed roughly 65% of the company's operating revenues from 2008 through the first three quarters of 2011. For Dazhong News, it was more than 60%.

Traditional media firms have sought to diversify revenue sources by adding broadcast and online outlets in recent years.

Nanfang Media launched www.southcn.com and modern media projects in 2001. Through one venture, the company set up 40 outdoor electronic advertising billboards as of last year. Another plan calls for installing 8,000 electronic newspaper reading systems across Guangdong Province by the end of 2012.

Dazhong News, meanwhile, has diversified its business by introducing mobile applications and websites to display news.

Last year, the company bought a stake in the Shandong Radio and Television Network for 800 million yuan, becoming the broadcaster's second-largest shareholder. Zhang said Dazhong News is betting on growth for the radio-television market as technology improves.

But overall, according to a media analyst at an investment firm, non-print businesses are contributing very little to the traditional media company revenues across China. "Many do not yet have clear plans for their new media businesses, which are still burning money," the analyst said. "It's hard to forecast their prospects."

Meanwhile web portals and a variety of start-up media businesses are competing with old-guard companies.

"There is fierce competition between traditional and new media companies, and new media development is likely to squeeze out traditional media companies," said another media analyst.

"New media firms have nationwide coverage," he said. "Traditional media companies are regional."