Huayi Brothers being probed for disclosure

The China Securities Regulatory Commission (CSRC) said Friday that the Shenzhen Stock Exchange was verifying if Huayi Brothers Media Corporation violated market rules on proper information disclosure during its latest purchases of companies.

Huayi Brothers, a Beijing-based film production company that was established in 1994, announced September 9 that it would purchase 20 percent of the shares of a cinema management company based in East China's Jiangsu Province for 210 million yuan ($34.32 million).

A week before that announcement, Huayi Brothers said it would purchase 70 percent of a television show production company based in East China's Zhejiang Province for 252 million yuan.

The CSRC said Huayi Brothers was being inspected by the Shenzhen Stock Exchange on "whether it released the information by doing interviews with the media, instead of by taking the formal path of information disclosure."

The regulatory body did not specify during which deal Huayi Brothers released the information inappropriately.

Huayi Brothers could not be reached for comment as of late Sunday.

But a company employee surnamed Wang was cited by Guangzhou Daily Saturday as saying that the firm did not receive any notice from the Shenzhen Stock Exchange regarding the verification and it has disclosed information in accordance with related rules.

Li Daxiao, research director at Yingda Securities Co, told the Global Times Sunday that if Huayi Brothers did indeed bypass the formal process of releasing its purchase information through the exchange, it should be considered as having violated market rules.

"Conducting media interviews and having news stories published cannot replace the posting of a formal notice on the Shenzhen bourse, since not all investors would pay attention to the news," Li said.

The alleged improper way of information disclosure could possibly impede Huayi Brothers' purchase if the exchange concludes that the violation is serious, Li said.

The share price of Huayi Brothers surged by 37.2 percent from September 1 to September 13, and the increase of the price hit the daily limit of 10 percent twice during the past two weeks.

A film and television industry expert surnamed Zhang told the Global Times Sunday that Huayi Brothers is buying into the television show production firm, which is owned by veteran Chinese actor Zhang Guoli, to diversify away from the high risks in the film industry.

"Film production usually requires billions of yuan of investment and the profit totally depends on the reception of the audience, while television shows need less investment and they could be sold to TV stations at an early stage," Zhang said. "The risks that Huayi Brothers faces are very small regarding this deal, because almost any show made by Zhang Guoli can safely make money."

Zhang said Huayi Brothers is buying the cinema management company to increase the number of movie theaters it owns, and to avoid the hassle of opening theaters and training staff on their own.