Caixin
Jan 17, 2017 08:00 PM
BUSINESS & TECH

Cash-Strapped Tech Giant LeEco Secures Last-Minute Funding

(Beijing) — The founder of cash-strapped Chinese technology giant LeEco has obtained 6 billion yuan ($870 million) in funding for his company by selling some of his own shares to an investor.

The sale increases to 16.8 billion yuan the total investments that the company has secured to address the urgent needs of its fast-expanding businesses.

Jia Yueting, LeEco’s founder and largest shareholder, announced Tuesday that he will sell 8.61% of his shares to Tianjin Jiarui Huixin Corporate Management Co. Ltd., according to a statement LeEco filed with the Shenzhen Stock Exchange, where the company’s internet subsidiary is listed.

Tianjin Jiarui is a subsidiary of Sunac China Holdings Ltd., a new strategic partner of LeEco that decided to cover investments of 15 billion yuan after having studied the headline-making company for just one month.

Sunac will become the second-largest stakeholder in LeEco’s listed company, “which reflects that the partner has recognized its value and future,” LeEco said in the statement.

Jia will inject the newly obtained cash into LeEco’s unlisted affiliates, according to the statement, without elaborating. The private operations of the group include smartphones, sports broadcasting and electric vehicles.

Besides buying shares from Jia, Sunac’s funding also includes taking stakes in LeEco’s movie and television affiliates, Leshi Pictures and Leshi Zhixin.

“This round of funding is very important and pivotal in LeEco’s development,” said Wang Guanxiong, an industry analyst and technology blogger.

The company has been caught in a cash crunch since late 2016 as its rapid expansion in recent years took it from an online video service into businesses as diverse as smartphones, e-commerce and electric vehicles. LeEco subsequently incurred debts and spending commitments worth billions of dollars, sparking concerns the company expanded too quickly.

Some of LeEco’s publicly known debts include $133 million to Taiwan’s Compal Electronics, $7.5 million to electronics supplier Haosheng Electronics, and $69,000 to the Hong Kong Economic Times.

As more payment defaults surfaced and shareholders’ worries grew, LeEco suspended trading on Dec. 7. The pause lasted until Monday, when it announced the latest round of funding at the weekend.

Jia admitted at a news conference with Sunac on Sunday that its cash-flow crisis had been an important lesson learned. “We moved too fast and the funding couldn’t keep up with us,” Jia said.

LeEco’s outward investments total as much as 75 billion yuan over the past six years, while funds it obtained from investors for the same period stood at about just 50 billion yuan, according to Caixin calculations.

However, recent cash injections were not directed towards LeEco’s most expensive businesses, such as electric-vehicle manufacturing, or operations involved in debt scandals, such as their smartphone and sports-broadcasting businesses.

Sunac founder Sun Hongbin said at the Sunday briefing that he had been keeping an eye on the automobile business, but didn’t put in any capital because he didn’t yet understand the industry.

But Sun said that he valued the car market, and that LeEco’s decision to make the high-end Faraday Futures series was the logically correct direction to take.

Wang said Sunac’s funding in LeEco was not just a rescue package, but could also help to attract other investors in the company.

Shares of LeEco surged by 10% to 38.94 yuan on Tuesday.

Contact reporter Coco Feng (renkefeng@caixin.com)

 

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