Chinese Arts Company Goes Public in Bid to Grow

Chinese Arts Company Goes Public in Bid to Grow

By DAVID BARBOZAFEB. 24, 2014

SHANGHAI — The China Poly Group Corporation, a state-run conglomerate that got its start selling weapons to the People’s Liberation Army, has over the past few decades successfully branched into developing real estate, selling sports cars and producing television sitcoms. Now the company’s huge arts and culture division — Poly Culture Group Corporation — is planning an initial public stock offering that could raise up to $330 million and bolster the prospects of the company in the world’s biggest and fastest-growing art and auction market.

By filing this week to sell shares on the Hong Kong Stock Exchange, Poly Culture hopes to become an international brand. It already manages dozens of Chinese cinemas, theaters and performance halls, and it competes with the world’s largest auction houses, Christie’s and Sotheby’s, in art sales.

“We are very big in the art auction market in mainland China but still have a long way to go to become the biggest auction house worldwide,” the company’s chief executive, Jiang Yingchun, said at a news conference last week, according to Chinese news media.

Beijing Poly International Auction, a division of Poly Culture, is already the world’s third largest auction house, with about $1 billion in reported sales in 2012.

Christie’s and Sotheby’s were, until recently, restricted from doing business in mainland China and operated mostly from Hong Kong. Now, Christie’s operates independently in China, and Sotheby’s has a joint-venture partner here. Still, both can deal only in watches, wine, jewelry and contemporary art, not the more lucrative markets of cultural relics, calligraphy and ancient works.

The initial public offering for a division of Poly is a sign of China’s transformation into a market economy, and the government’s eagerness to develop its cultural organizations to protect and promote Chinese culture at home and abroad. Several other divisions of Poly are already publicly listed, including Poly Real Estate Group. According to the new filing, the Beijing-based Poly Group, which has longstanding ties to the military and the family of the former Chinese leader Deng Xiaoping, will retain 67 percent of Poly Culture’s shares.

In the prospectus filed last week, investors were cautioned about the potential risks of investing in Poly Culture, which was formed around 2000.

It, for example, has suffered, as other Chinese auction houses have, from a problem that has plagued the nation’s art market: buyers who bid up prices but then fail to pay for the items after the auction. According to the prospectus, settlement rates on its auctions have declined in recent years. “Although we actively review the outstanding fees and liaise with relevant parties to speed up the collection process,” the company wrote, “there is no assurance we could settle all the amounts from relevant buyers in due course, or at all.”

Also, last year the United States imposed sanctions on Poly Technologies, a defense equipment division that American authorities accused of violating the nonproliferation policy that controls weapons traffic with Iran, Syria and North Korea. (The Chinese government has opposed the sanctions and insisted they be lifted.)