CJ CGV seeks more fund from parent, stocks at 15-yr low

Shares of CJ CGV Co., South Korea’s top multiplex cinema chain, hit the lowest level since the 2008-09 global financial crisis on Wednesday as it sought more financial support from its parent group for survival.

CJ Group, South Korea’s food-to-entertainment conglomerate, is set to inject more money to save the struggling movie theater unit, which plans to raise some 1 trillion won ($790 million) for debt repayment and new businesses.

The plans added to concerns over the financial structure of CJ CGV, which is likely to continue to report losses. Its stock price tumbled as much as 20.7% to 11,500 won, the lowest level since December 2008.

CJ CGV said on Tuesday it decided to secure 570 billion won through a rights offering, in which the group’s holding company CJ Corp. is poised to inject 60 billion won. CJ CGV plans to issue 74.7 million new stocks at 7,630 won per share through the offering. Its share price ended at 14,500 won on the day in South Korea’s main stock exchange where 47.7 million shares in the company are listed.

In addition, CJ Corp. is set to allocate 450 billion won in shares of its wholly owned subsidiary CJ OliveNetworks Co. for CJ CGV through a stock swap deal with the theater operator.

With the transactions, CJ Corp., CJ CGV’s largest shareholder, will cover about half of the money, which the company aims to raise. CJ Corp.’s shares also lost up to 5.1% to trough at 74,100 won on the day, the weakest since November 2022.

The holding company already provided some 300 billion won to CJ CGV in 2020 when COVID-19 dampened the multiplex operator by participating in a rights offering and buying hybrid securities. In 2021, CJ Corp. handed over the advertising business of CJ OliveNetworks, which generated annual sales of 100 billion won, to CJ CGV.

DEBT CONCERNS

CJ CGV will use the proceeds from the planned fundraising for future growth.

“We will work on the next CGV strategy, which will provide new experiences to customers at theaters and develop new businesses, with the money,” said a company official.

CJ CGV is likely to spend much of the money to call back perpetual bonds issued since 2020 and repay the principal of short-term loans, however, the local investment industry sources said.

The company’s outstanding balance of perpetual bonds amounted to 1 trillion won while its short-term borrowings due within one year totaled 338.3 billion won as of end-March.

The cinema operator will find it difficult to pay back those debts on its own, given its cash equivalents of 366.9 billion won, while it is unlikely to post profits in the near term, according to the sources.

“CJ CGV is in a serious situation with a debt ratio of 912% even when they exclude the hybrid securities from debts,” said one of the sources.

TO REMAIN IN THE RED

CJ CGV is not immune to the industry’s downturn amid the growing popularity of over-the-top (OTT) media platforms such as Netflix Inc., which could render the group’s financial support of little help, analysts said.

The company was forecast to report an operating loss of 15.3 billion won this year, according to Meritz Securities Co., after deficits of 76.8 billion won in 2022 and 241.4 billion won in 2020, respectively.

The number of movie audiences who visited theaters in the country totaled 11.6 million in the first five months of the year, less than a quarter of 46.9 million in the same period of 2019 before the outbreak of COVID-19, according to the Korea Box-office Information System.

“Audiences are reluctant to come back to theaters as ticket prices surged and they can enjoy movies on OTT services,” said a multiplex industry source said. “It is hard to make profits similar to levels before the pandemic only with movies.”

CJ Group’s core affiliates are also in the doldrums with only CJ Logistics Corp. and CJ Olive Young Co. reporting healthy earnings.

CJ ENM Co., the country’s entertainment powerhouse, turned to the red in the first quarter with an operating loss of 50.3 billion won while CJ Cheiljedang Corp., a food giant, suffered a 41% drop in operating profit during the period on higher raw materials costs.

Write to Hun-Hyoung Ha at hhh@hankyung.com
 
Jongwoo Cheon edited this article.