LeEco Assets Frozen Due to Overdue Loan Payments

(Beijing) – A Shanghai court froze 1.2 billion yuan ($177 million) of assets owned by subsidiaries of tech giant LeEco and founder Jia Yueting because of missed loan payments, worsening the company’s cash crunch.

Separate sources told Caixin that the Shanghai High Court last week approved a request by a branch of China Merchant Bank to freeze LeEco assets that were pledged as collateral in 2015 for a 2.4 billion yuan loan. Payments on the loan were almost two months in arrears, sources said.

LeEco has run into a cash shortage after years of aggressive investments to expand its business to smartphones, online video, entertainment and electric cars. At last week’s meeting with shareholders of the main listed unit, Leshi Internet Information & Technology Corp., LeEco CEO Jia said “the cash situation in the recent months is worse than last year.” LeEco has spent 15 billion yuan repaying loans to financial institutions, Jia said.

The frozen assets include bank deposits and other assets owned by Shenzhen-listed Leshi Internet, Leview Mobile HK Ltd., Leshi Mobile Intelligence Ltd. and Jia and his wife Gan Wei, according to court documents.

The court also ordered that Leshi Internet’s interest in Dasheng Technology Co. be frozen for three years. Dasheng is an internet auto service joint venture set up by Leshi Internet and Guangzhou Automobile Group in June 2016. Leshi Internet owns 40% of the venture with an 80 million yuan investment, a company registration document showed.

LeEco hasn’t commented on the matter.

At last week’s meeting with Leshi Internet shareholders, Jia acknowledged that the company’s cash crunch is “more severe than expected,” even after the company secured an investment of 16.8 billion yuan ($2.47 billion) in January.

Merchant Bank told Caixin late Monday that its Shanghai branch asked the court for an asset freeze after LeEco’s Hong Kong-registered subsidiary Leview Mobile failed to make interest payments on time. The branch made several demands to Leview for the payments, the bank said.

Public documents showed that Merchant Bank agreed in 2015 to provide a 10 billion yuan credit line to LeEco and its subsidiaries, including a HK$2.74 billion (2.4 billion yuan) loan in July 2015.

Sources close to the matter said the HK$2.74 billion loan was to fund LeEco’s acquisition of an 18% stake in smartphone maker Coolpad Group in Hong Kong through Leview Mobile. LeEco used domestic deposits and investments as collateral for the loan, which was issued by the bank’s Hong Kong branch to Leview Mobile, sources said.

The missed payments may partly reflect the more complicated procedure for transferring capital to Hong Kong under tighter foreign exchange rules imposed late last year to prevent capital flight, but it also indicates the failure of LeEco’s overseas investments to generate enough cash, sources said.

Concerns over the financial condition of Hong Kong-listed Coolpad have mounted since March, when the company delayed the issuance of its annual report, citing auditing issues. Trading in Coolpad’s shares has since been suspended.

Coolpad said Friday it would further delay reporting the 2016 financial results. Jia, who is also chairman of Coolpad, said in a filing with the Hong Kong Stock Exchange that the company needed more time to provide information requested by auditors regarding “rationale and business substance of various prepayments and/or loans.”

Contact reporter Han Wei (weihan@caixin.com)