(Yicai Global) June 19 -- The chairman of Huayi Brothers Media, who recently pledged company stock to secure loans, will spend at least CNY100 million (USD15.47 million) of his own money to increase his stake in the Chinese film and television titan amid claims the pledges were a divestment by stealth.

Wang Zhongjun opted to raise his shareholding based on his confidence in the company's stable future development and appreciation of its intrinsic value, the Beijing-based firm said in a statement yesterday. His intention is also to bolster investor confidence, shield minority shareholders and stabilize capital markets. Wang also undertook not to transfer his holdings during the purchase period and within six months thereafter.

Yicai Global reported on June 11 that Wang and his co-founder brother Wang Zhonglei pledged 523 million shares, or almost 19 percent of the company's total stock, with China Securities and other institutions to secure personal loans to fund other projects and equity purchases. Huayi Brothers said at the time that the pledges did not constitute a share sale and did not mean the brothers had lost confidence in the business. They held just 2.21 percent and 1.04 percent of the company's shares respectively on June 11 after ongoing stock pledges over the years. 

Wang Zhongjun held about 612 million shares in Huayi Brothers, or just over 22 percent, as of yesterday, the statement added.

Market pundits likened the deals to a cash-out, comparing them with an earlier disguised divestment by fugitive entrepreneur Jia Yueting, former chairman of Leshi Internet Information & Technology, better known as LeEco. The speculation pushed Huayi Brothers' stock price into a nosedive.

Stock Plunge

The shares [SHE:300027] closed at a five-year low of CNY6.46 (USD1) on June 15, having shed more than CNY5 billion (USD773 million) of the company's market value in the past three weeks. It fell another 5 percent today.

Formed in 1994, Huayi Brothers owns a film studio, TV production facilities, a talent agency, record label and cinemas. Variety magazine once called it "China's largest private sector film conglomerate." It was the seventh-largest film distributor in China, with 2.26 percent of the market in 2014.

To add to Huayi Brothers' woes and further drive down it shares, Chinese self-media circulated rumors online that prompted the company to file a libel suit on June 14. The claims led with lurid banner headlines such as, 'Huayi Brothers Media Suddenly Pledges Almost All of Its Shares, Not the End of Story' and 'Breaking News! Huayi Brothers Media Suddenly Pledges Almost All Equity in Crazy Cash-Out!' 

Huayi Brothers also took a series of other measures, but its shares have stayed in freefall. Wang Zhongjun said in a letter to shareholders that he had not shed any stock since 2014 and promptly redeemed 44.25 million pledged shares on June 12 to raise his holding to 3.22 percent.

Two earlier pledges by Wang Zhongjun had skirted the red line of forced liquidation, news reports noted, just as Jia Yueting's stock-pledged repo transactions also triggered a mandatory liquidation threshold stipulated in the agreement between the firm and its founder, Yicai Global reported in March.

Huayi Brothers will have more than 290 million restricted shares to float on the market on August 27, with a market value of CNY1.91 billion, or 10.5 percent of its share capital. Once these shares issue and institutional investors discard their holdings, the stock price may fall further, while the specter of forced liquidation stemming from the Wang brothers' share pledges will also loom larger.

Editor: Ben Armour