Marbridge Daily

Rumor: Caixin to IPO in Three Years

Money Week, 7/30/12

A number of industry sources reported today that Chinese internet and mobile giant Tencent (0700.HK) had invested in Caixin Media Company through an arrangement involving the issue of new stock as well as a proportional investment from the Zhejiang Daily Media Group (600633.SH), preserving the latter's 40% stake in the company. Shares held by Caixin employees and original PE shareholders have been diluted. According to a list provided to Money Week by Caixin, a number of new investors have joined the company over the past year. Caixin Media sought a third round of investment in 2011, at which time it said that it planned to IPO within three years in Hong Kong or on a domestic GEM board.

A spokesperson for Caixin Media denied having heard of the IPO plan. When contacted by phone, Caixin chief editor Hu Shuli said she was not involved in capital operations and was unaware of the matter.

Tencent reportedly decided to invest in Caixin in September 2011, but plans fell through after Zhejiang Daily proved unwilling to have its stake in the company diluted. An industry source said that as a condition of its investment, Tencent promised to temporarily cover the necessary investment for other shareholders who were unwilling to see their shares diluted but did not have access to the cash necessary to increase their investment.

Both Tencent and Caixin have said that Tencent will not take part in the day-to-day operations of Caixin Media - but that the companies could form strategic partnerships in new media channels and other areas. Long before Tencent's investment in the company, Caixin's Century Weekly granted exclusive online republishing rights to Tencent.

According to a 2011 public filing regarding Zhejiang Daily Media Group's transfer of shares in Caixin Media, Caixin Media had liquid assets of RMB 37.11 mln, cash assets of RMB 12.26 mln, and accounts receivable totaling RMB 24.85 mln according to the most recent audited annual financial report as of July 2011. Main business revenues totaled RMB 31.47 mln, for operating losses of RMB 33.15 mln and net losses of RMB 14.27 mln. One of the conditions for the equity transfer was that the purchaser provide RMB 100 mln in low-interest loans to Caixin Media over a five-year period during which it could not require repayment.

An industry source said that Caixin Media invested tens of millions of RMB into a partnership with Asia Television Ltd. (aTV) in 2011 under which Caixin would partner with aTV on producing and operating television programs starting in early 2012. After Caixin devoted a team of more than 100 people to the project, however, aTV's enthusiasm for the partnership wavered and the project fell through, leading Caixin to move up its financing plans.

According to an investment industry source, Caixin contacted some investment organizations in mid-2011 in hopes of raising USD 12 mln in third-round funding to finance investments in new periodicals and multimedia product development, including smartphone apps and Kindle-related products.

The Zhejiang Daily Media Group's 2011 filing also stated that Zhejiang Daily invested RMB 40 mln in Caixin Media when the company was established in December 2009, in exchange for a 40% share of the company. Tianjin Zhiheng Business Management, Tianjin Yufu Business Management, and Tianjin Huisi Business Management held 20%, 20%, and 19%, respectively, of the company, with the remaining 1% owned by Ge Qian.

The three Tianjin-based companies have registered capitals of RMB 25.05 mln, 26.05 mln, and 24.75 mln, respectively, and were all established on May 20, 2010. Beijing Caidunmin Management Consulting is listed as the legal person for all three companies, while Wu Peng, deputy chief editor of Century Weekly, was listed as the designated representative for all three. Caidunmin Management consulting was established in 2009 with a registered capital of RMB 500,000. The three Tianjin-based companies are acting in concert and in fact control Caixin Media.

An industry source says that the three companies are investment vehicles of Caixin Media. Some of the shares held by the three companies are owned by Caixin Media senior management; others, by small-scale PE investors. The Caixin Media team, including Hu Shuli, could hold nearly 30% of the company.

A source close to Caixin Media insiders revealed that the company's chief sources of revenues are advertising, conference partnerships, and book and magazine publishing at present. Copyright partnerships account for a small sum.

Editor's Note: For more information on this topic, please see "Rumor: Tencent Acquires 20% Stake in Caixin," MD 7/19/12 issue.

Keywords: Internet IPO funding television Tencent 0700.HK Hu Shuli Caixin Media Zhejiang Daily Media Group 600633.SH profit revenue Asia TV