LeEco Says It Has Cash to Buy Back Up to $287 Million Worth of Bonds

The financially beleaguered LeEco conglomerate has enough cash to repurchase two bonds worth up to 1.93 billion yuan ($287 million) if bondholders were to exercise their put options and force the company to pay back the principal on the bonds before they mature, sources told Caixin.

Allaying market fears over LeEco’s weak cash position and offloading the company’s money-losing businesses are two top priorities for Sun Hongbin, who took over the helm as LeEco’s chairman just two weeks ago. As banks have been working to freeze some of LeEco’s assets, investors are increasingly concerned about a potential default on the company’s bonds — a development would send shock waves across China’s financial system.

Both bonds were issued by Leshi Internet Information & Technology Corp., the Shenzhen-listed unit of LeEco. In addition, each bond has a put option, which gives bondholders the right to demand LeEco pay back the principal starting on Aug. 3 and Sept. 23 respectively. The debts were privately placed to a small group of investors, mostly brokerages and banks, in 2015. It is not known whether and how many bondholders will exercise their put options.

However, “the funds (to pay back on the principal) are ready,” a person close to the deal told Caixin, adding that Sun, LeEco’s new chairman, was the one who made the call.

Given the company’s ongoing cash crunch, it is “highly possible” that bondholders might exercise their respective put options to lock in their share of the cash while they can, market-watchers say.

Financial institutions that flocked to finance LeEco’s expansion years ago have turned cautious. On Tuesday, a Beijing court backed China Construction Bank’s request to freeze 250 million yuan of LeEco’s assets due to unpaid loans, followed by the bank’s temporarily backing off its 15-U.S.-cent credit limit for LeEco staff for risk assessments.

Public documents show that over the past six years, LeEco’s listed and unlisted companies have raised a combined over 50 billion yuan through share placements, equity sales, bond issuances and other financing, in part to fund aggressive investments in smartphones, online video, entertainment and electric cars.

Those investments totaled 78 billion yuan, leaving a funding gap of nearly 28 billion yuan, according to LeEco’s earlier official release.

Sun said earlier he aims to have a radical shakeup of LeEco’s major businesses and proposes spinning off money-losing smartphone and sports-related businesses.

LeEco’s listed unit Leshi has estimated a loss of 637 million to 642 million yuan in the first half of this year, according to regulatory filings, citing a cash crunch and a loss of customers and advertising clients amid its falling reputation.

Contact reporter Leng Cheng (chengleng@caixin.com)