(Yicai) July 24 -- Alibaba Pictures Group will receive a 70 percent stake in Dongyang Meila, a film studio set up by renowned Chinese director Feng Xiaogang, after the studio’s major shareholder Huayi Brothers Media failed to repay a debt.

Huayi Brothers will transfer its entire stake in Dongyang Meila at a discount to offset the CNY350 million it still owes to Alibaba Pictures, the Hangzhou-based unit of Alibaba Group Holding announced yesterday.

Alibaba Pictures lent CNY700 million to Huayi Brothers for five years in 2019, with the borrower’s interest in Dongyang Meila and subsidiary Jiali Culture pledged as collateral. Last November, Huayi Brothers transferred Jiali Culture to Alibaba Pictures, offsetting half of the debt.

Dongyang Meila was founded in 2015 by Feng, who directed well-known Chinese movies Back to 1942 and I Am Not Madame Bovary. In the same year, Huayi Brothers acquired 70 percent of the studio for CNY1.1 billion (USD151 million). Feng kept the rest.

Shares of Alibaba Pictures [HKG: 1060] fell 1.2 percent to close at 40 Hong Kong cents (5 US cents) each today, while Huayi Brothers [SHE: 300027] slid 2.5 percent to CNY1.57 (22 US cents).

Dongyang Meila has failed to meet its agreed performance commitments to Huayi Brothers twice: once in 2018 as a result of Fan Bingbing, one of China's best-known actresses, being embroiled in a high-profile tax evasion scandal, and once in 2020 because of the impact of the Covid-19 pandemic. Feng paid Huayi Brothers a total of CNY235 million in performance compensation.

Huayi Brothers lost CNY8 billion (USD1.1 billion) in the six years through 2023. In the first quarter of this year, the firm’s net loss increased 77 percent to CNY18.6 million (USD2.6 million) from a year ago, according to its latest financial report. Revenue tumbled 59 percent to CNY95.2 million.

Alibaba is one of Huayi Brothers’ major investors. Its founder Jack Ma and its subsidiary Alibaba Entrepreneurs Fund hold 2.6 percent and 3.5 percent, respectively, in Huayi Brothers.

Editor: Futura Costaglione