CJ CGV under pressure to shed China, Vietnam cinema assets

MBK Partners and Mirae Asset Securities Co. are considering divesting of their holdings CGI Holdings Co., which oversees CJ CGV Co.’s multiplex operations in China, Indonesia and Vietnam – a move that could force CJ CGV to sell its stake in the unit and potentially exit all three markets.

MBK Partners and Mirae Asset Securities’ private equity division hold a combined 17.58% stake in CGI Holdings in a consortium as the second-largest shareholder.

According to investment banking sources on Monday, they will be eligible, starting June 19, to require CJ CGV, the majority shareholder of the CGI Holdings, to jointly sell their shares to a third party.

If they exercise the drag-along rights, CJ CGV, South Korea’s largest multiplex cinema chain, may have to offer all or part of its shares in CGI Holdings.

If that happens, industry observers say CJ Group may have no choice but to exit China, Indonesia and Vietnam on the back of accumulated debts amid a shift toward over-the-top streaming platforms such as Netflix Inc.

CGI Holdings makes up almost half of CJ CGV’s earnings and 33% of revenue on average in the past three years.

In 2019, CGI Holdings was established with an investment of 333.6 billion won ($245 million) by MBK and Mirae Asset, giving them a combined 28.57% stake.

Under the terms of the deal, CGI Holdings was expected to go public on the Hong Kong Stock Exchange by June 2023 at a valuation of more than 2 trillion won.

If the listing condition is not met, CJ CGV is required to buy back the shares from MBK and Mirae Asset at a premium, or to sell its own stake in CGI Holdings alongside theirs to a third party.

CJ CJV has yet to begin negotiations with MBK and Mirae Asset on whether to exercise their drag-along rights, according to the sources.

In July 2024, CJ CGV extended the drag-along deadline to June 19, and repurchased an 8.7% stake from MBK and Mirae Asset under a call option agreement.

The cinema operator may be unable to afford the share buyback.

As of the end of 2024, CJ CGV’s borrowings snowballed to 1.06 trillion won, a 7.2% increase from the year prior.

In April, it sought to raise 40 billion won through hybrid securities – classified as equity capital – but failed to draw investors.

However,, some industry observers say CGI Holdings could sell its operations in China, Indonesia and Vietnam separately to local buyers at a decent premium as those markets are recovering at a faster pace than South Korea's.

If so, the potential divestiture could strengthen CJ CGV’s bottom line, they added.

Write to Jun-Ho Cha at chacha@hankyung.com
 

Yeonhee Kim edited this article.