By Pei Li and Adam Jourdan
BEIJING/SHANGHAI (Reuters) - Viacom Inc's <VIAB.O> Paramount Pictures said a $1 billion films-funding deal with China's Huahua Media has been scrapped after the Asian nation tightened foreign investment policies, the latest Hollywood-China tie-up to unravel due to Beijing's scrutiny.
Under an agreement announced earlier this year, Huahua Media and state-linked Shanghai Film Group were to provide Paramount with a $1 billion cash investment, giving the U.S. studio much-needed funds for growth.
The investment would have financed 25 percent of Paramount's movies in fiscal 2017 through 2019, according to the studio.
But the deal had been rumored for months to have run into obstacles with Chinese authorities, and in August and September Viacom and Paramount executives confirmed the funds had not been received.
"Paramount Pictures and Huahua Media have mutually agreed to end their slate financing agreement...following recent changes to Chinese foreign investment policies," Paramount said in a statement on Tuesday.
Huahua Media could not be reached for comment.
China has stepped up scrutiny of what it sees as “irrational overseas spending”, especially in sectors such as entertainment, sports and real estate.
Earlier this year, Chinese conglomerate Dalian Wanda had to scrap a deal to buy American entertainment production company Dick Clark Productions Inc for $1 billion.
And in June, China’s banking regulators ordered a group of lenders to assess their exposure to offshore acquisitions by a handful of companies that have been on an overseas buying spree, including HNA Group, Dalian Wanda Group Co, Anbang Insurance Group and Fosun International Ltd.
As a result of the crackdown on overseas deals, China’s non-financial outbound direct investment (ODI) fell 41.9 percent in January-September from a year earlier to $78.03 billion.
Huahua has partnered with Paramount on several films, including "Transformers: the Age of Extinction" and "Star Trek Beyond". Shanghai Film Group (SFG) was an investor in "Jack Reacher: Never Go Back".
Paramount said the termination of the deal would impact Viacom's fourth-quarter earnings by $59 million and that it
had secured alternative financing agreements with toymaker Hasbro Inc <HAS.O>, Skydance Media and others to finance the production costs for the movies.
It is not clear if SFG is still involved in the deal. Paramount made no reference to SFG in its statement on Tuesday. Calls and text messages to SFG did not elicit any response.
(Reporting by Pei Li in Beijing, Yashaswini Swamynathan in Bengaluru; Editing by Shounak Dasgupta and Muralikumar Anantharaman)