The OTCQX is a secondary exchange only, which means Imagi wonÆt be raising any new capital in connection with the listing and the move wonÆt be dilutive for existing shareholders. It will trade in the US through depositary receipts that will each represent a certain number of its Hong Kong-listed shares.
The new exchange û which is effectively an online trading platform for a select group of companies û has attracted several high-profile international names since it began operations in March 2007. The key reason is that it promises to provide access to some of the deepest pools of institutional and retail liquidity in the world without a need for the companies to register with the Securities and Exchange Commission, or having to deal with the costly disclosure requirements imposed by the Sarbanes Oxley regulations.
And this is also part of why Imagi has decided to pursue a listing here. According to CEO Douglas Glen, the aim with the listing is to increase the companyÆs visibility in the US, to attract institutional funds that are only allowed to invest in US-listed companies and to access analyst coverage from firms that can only cover companies trading in the US.
ôWe are one of only two pure-play computer graphics feature animation houses in the world and we are really the only motion picture studio based in Asia that has a Hollywood-looking product line,ö Glen says, noting that other listed motion picture studios like Sony, Paramount, Warner, Dreamworks and Universal are all based and listed in the US and consequently the coverage is also in the US. ôWe feel that the OTCQX listing will give us access to those analysts who write from a very informed point of view and that will be good for us.ö
Glen, who spoke with FinanceAsia in a phone interview, says Imagi didnÆt think that just issuing American depository receipts and have them trade over-the-counter in the US was an attractive option as they may not get that much attention. And a dual listing on an exchange with Sarbanes Oxley requirements also was ôpretty difficult to swallow û partly because of the cost, partly because it would take so much of our time to monitor and meet the requirements. So OTCQX is a best-of-all-worlds solution for usö, he says.
Indeed, according to Stephen Nash, who heads up Merriman Curhan Ford's OTCQX group, investors like the OTCQX because it effectively differentiates solid, high-quality companies from the thousands of securities that trade over-the-counter in the US. This is achieved by admitting only companies that already trade on a ôqualifiedö exchange and thus comply with regulations in their home market, and by the fact that each listing candidate has to have a US sponsor that provides a second layer of due diligence and effectively puts its brand reputation at risk to guarantee that the company is solid.
With regard to being the first company from Hong Kong to ôtestö the new exchange, Glen says this doesnÆt worry him a bit and could even work to ImagiÆs advantage.
ôIf you make your decisions prudently, being the first has huge rewards. We are in the movie business where the first company that makes a film with a refreshing new theme generally does extremely well, while the companies that imitate it tend to do less well û even though they think they have made safe decisions, they have actually made much riskier decisions.ö
In a separate interview last month, MerrimanÆs Nash said another five to 10 Hong Kong-listed companies are ôvery seriously consideringö a listing on the new bourse.
So far, the OTCQX has attracted 32 international companies, including six Australian companies, and the list is growing pretty rapidly. Only this week, two new companies have joined the exchange, including London-listed Marks and Spencer Group. Other well-known names on the list include Roche, BASF, Adidas, Akzo Nobel and Air France-KLM. As of mid-June, the exchange had a total market capitalisation of $415 billion, while year-to-date trading volumes had already exceeded $6 billion. Since then, five new companies have joined, further boosting the market cap.
Having released its first theatrical move in March 2007 (known as TMNT and featuring the Teenage Mutant Ninja Turtles), Imagi is now well on its way to releasing its second one in 2009, based on the Japanese superhero Astro Boy. This will be followed also in 2009 by the effects-rich Gatchaman, which focuses on five reluctant heroes who are defending the earth against extra-terrestrial invaders. Going forward, Glen says the company plans to release one feature-length film every nine to 10 months and expects to have about two-and-a-half movies in production at any given time. Each movie takes about two years to complete from the time it has a ready script.
The mid-cap company has come a long way since its main business was to manufacture artificial Christmas trees under the name of Boto International Holdings and Imagi was only a small side business. The Christmas tree business was divested in 2002 and in 2005, Imagi made a decision to become a pure computer graphics animated film studio that makes its own feature-length movies, handling everything from writing, producing and directing to animation and distribution to proper movie theatres.
Glen refers to the change of business lines as a ôreally visionary transformationö and an example of the fact that low value-add manual labour delivering cost competitive products from the Pearl River Delta is a thing of the past.
ôHong Kong was once one of the great movie markets in the world with a wonderful tradition of film making, and a unique brand of film making with beautifully choreographed action movies and we are now doing it with computer graphics. It is the natural thing to do,ö he says.
Imagi has filed an application with the relevant US regulators to list on the OTCXQ and, while awaiting their approval, the company will be mandating a depositary receipt bank to manage its DRs. According to Glen, the company is currently evaluating a proposal from one of the big four DR banks, but has yet to make a decision on which one to choose.
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