Alibaba Pictures Group Ltd. (1060), a film producer controlled by China’s largest e-commerce company, said its new management uncovered possible accounting flaws and won’t be able to publish its interim results on time.
The media company’s executives identified possible “non-compliant treatment” of financial information for periods before its acquisition by Alibaba Group Holding Ltd. (BABA), it said in a Hong Kong stock exchange filing. In addition, Alibaba Pictures may not have made enough writedowns for some assets in the first half of the year, the filing shows.
Alibaba Group agreed to buy 60 percent of the company, formerly known as ChinaVision Media Group Ltd., in March for HK$6.24 billion ($804 million) to gain rights to television dramas and English Premier League soccer. The Chinese company, which is preparing what may become the largest U.S. initial public offering ever, has announced $5 billion of acquisitions in the past year, data compiled by Bloomberg show.
“People will take a look at their future M&A more carefully,” Raymond So, dean of the business school at Hang Seng Management College in Hong Kong, said about Alibaba Group by phone. “They have to strengthen their corporate governance so that it’s subject to increased checks and balances.”
So said it was too early to say whether the incident would have any impact on Alibaba Group’s IPO.
Shares of Alibaba Pictures, whose board includes martial-arts actor Jet Li, were suspended from trading from 9 a.m. in Hong Kong today until further notice. They surged 186 percent the first trading day after Alibaba’s takeover was announced in March and have quadrupled since the start of the year.
Goldman Sachs Group Inc. (GS), which is one of the six senior banks managing Alibaba’s IPO, advised the company on its purchase of the ChinaVision stake, according to a March filing. Reorient Financial Markets Ltd. advised ChinaVision. Connie Ling, a spokeswoman for Goldman Sachs in Hong Kong, declined to comment.
Less than a month after Alibaba completed the takeover, the media company said it expects to swing to a first-half loss of HK$97 million to HK$180 million. Revenue fell as much as 75 percent from a year earlier after some of its films weren’t released in the six months ended June 30, it said in a July 18 exchange filing.
Alibaba Pictures in June said it appointed Shao Xiaofeng, Alibaba Group’s chief risk officer, and Alibaba Group vice president Liu Chunning to its board. The company named Zhang Qiang, a former vice president of state-owned China Film Co., as its new chief executive officer on Aug. 5.
“Alibaba Group fully supports the new management of Ali Pictures as they thoroughly review and rectify the possible financial non-compliance they have found with the former ChinaVision,” the company said in an e-mailed statement. “The new management team has a firm commitment to transparency, good corporate governance, and investor protection, and the actions they have taken are consistent with this commitment.”
The company is entitled to 30 percent of the investment return from the blockbuster movie “Journey to the West: Conquering the Demons,” directed by Chinese movie star Stephen Chiau, according to its 2013 interim report. It has agreements to work on films with Wong Kar-wai, the award-winning director of Hong Kong films including “In the Mood for Love,” and Taiwanese director Giddens Ko.
Alibaba has been expanding beyond its e-commerce roots as it prepares for an IPO that may raise as much as $20 billion. The company warned in U.S. regulatory filings it faces challenges after recently making a “significant number” of deals, as it doesn’t have substantial experience integrating major acquisitions and any difficulties could distract its management.
In June, Alibaba agreed to pay 1.2 billion yuan ($195 million) for a stake in China’s most popular soccer team in a deal struck over drinks between founder Jack Ma and fellow billionaire Hui Ka-yan. The two executives agreed on terms for the deal with a 15-minute phone call June 4, after first discussing it the night before, they said at a June 5 press briefing.
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