Funds bemoan lack of worthy projects

Despite increased investment in recent years in a healthy number of funds focusing on China's booming cultural sector, the number of worthy deals being identified is reported to have dried up, according to experts.

According to a new report by ChinaVenture Group, which provides advice to China-focused investment banks and institutions, 92 cultural industry investment funds have been created in China since 2007.

Thirty-six of them are still open to new investment, but 56 now say they are closed to any new fundraising as there are too few deals available to invest in.

ChinaVenture said that a total of 46.6 billion yuan ($7.5 billion) has been raised by funds to invest in the sector.

China Culture Industrial Investment Fund, one of the largest funds at 6 billion yuan, was set up by the Ministry of Finance, Bank of China International Holdings, and China International Television Corp.

"Government encouragement is a key to a pleasing financing environment for us," said Zhai Changxin, a vice-president at the fund.

In July 2009, the government introduced measures to promote the development of the cultural sector.

But there have been just 88 investment deals totaling 5.1 billion yuan in the sector from China-based funds, according to the ChinaVenture report.

It identified its main investment targets as film, television and music, art performance, tourism real estate and online games.

Wan Ge, an analyst at ChinaVenture, said that Chinese cultural companies are still immature in an investment sense, and the number of companies with investment potential remains low.

"It is difficult to find a good profit model, and that is now preventing cultural companies from receiving investment funding," said Duan Shaoxian, the general manager of the Beijing branch of Yang Liping Arts & Culture Ltd.

Shenzhen Capital Group Co Ltd, a leading Chinese private equity firm, invested 30 million yuan last year in Yang Liping Arts & Culture Ltd, for a 30 percent stake in the business.

Duan said the financial performance of film and television companies will remain volatile because their project management models too often remain reliant on individuals.

Only one IPO exit and two merger and acquisition exit deals have been made by Chinese cultural industry investment funds, the report said.

By mid-April, at least 18 cultural companies had canceled their IPO plans.

"Cultural companies feel it is difficult to exit their investments because of the condition of the Chinese capital market, and because Chinese companies in the sector remain small," said Li Yizheng, a vice-president at China Securities Co Ltd.

Li added that the rise in companies abandoning their IPO plans may have been caused by their failure to meet the listing requirements due to their fluctuating balance sheets.

The China Securities Regulatory Commission has been carrying out a strict review of companies seeking listings since the end of last year.