Caixin
Jul 22, 2017 09:04 AM
BUSINESS & TECH

LeEco’s Listed Arm Elects Sunac’s Sun Hongbin as New Chairman

Sun Hongbin, founder and chairman of Sunac China Holdings, a Tianjin-based property developer and the second-largest shareholder of Leshi. Photo: Yang Yifan/Caixin
Sun Hongbin, founder and chairman of Sunac China Holdings, a Tianjin-based property developer and the second-largest shareholder of Leshi. Photo: Yang Yifan/Caixin

(Beijing) — Sun Hongbin was named chairman of Leshi Internet Information & Technology, the major listed arm of cash-strapped tech group LeEco, replacing departed founder Jia Yueting.

Sun is the founder and chairman of Sunac China Holdings, a Tianjin-based property developer and the second-largest shareholder of Leshi after Jia. In January, Sunac agreed to a 15 billion yuan cash infusion to LeEco in exchange for an 8.61% stake in Leshi.

Leshi said Friday that the board also named a new chief executive officer and chief content officer. In an extraordinary shareholder meeting on Monday, Leshi elected a new board of eight members. The meeting took 15 minutes and was hastily ended as about two dozen LeEco creditors protested outside the meeting venue in Beijing.

The leadership shuffle came after Jia stepped down from all posts at Leshi earlier this month to focus on LeEco's electric car business. A Shanghai court in early July froze 1.2 billion yuan ($177 million) of assets owned by subsidiaries of LeEco and by Jia because of missed loan payments.

The court’s action worsened LeEco’s ongoing cash crunch, which began unfolding last year after years of aggressive investments expanding into smartphones, online video, entertainment and electric cars. LeEco defaulted on the interest and principal payment for a $75 million convertible bond that was due July 7, bondholder Shanghai Qicheng Asset Management Co. told Caixin Friday.

In a separate deal last week, Sunac agreed to pay 63.17 billion yuan to take over 76 hotels and a majority stake in 13 theme parks from Dalian Wanda Group. The massive deal sparked controversy over Sunac’s financial strength and triggered international credit rating companies to issue negative opinions on Sunac. The deal was later revised so that Sunac would buy only the theme parks for 43.84 billion yuan while Tianjin R&F Properties stepped in as the new buyer for Wanda’s hotels.

Since its January investment, Sunac has scrutinized LeEco’s business operations and spending, said a person close to Sunac. Sun asked LeEco to adjust loss-making business segments such as mobile and sports, but Jia disagreed, this person said.

“Messy management and lax financial control, as well as hesitation for business adjustments, are the main problems of Jia,” the person said. To prevent losses on its investment and take control of capital flows, Sunac stepped in and appointed directors and finance managers to several LeEco subsidiaries, the person said.

Since February, Jia’s team lost control of LeEco’s finances to Sun’s team, according to a creditor of the company.

Another creditor told Caixin that it's possible Sun would push to transfer certain LeEco assets to the listed Leshi to boost the stock price. These assets may include LeEco’s film production company, Leshi Pictures, and its smart TV unit, Leshi Zhixin, the creditor said.

Leshi’s shares dropped 14% in Shenzhen this year through mid-April, when the stock was suspended from trading. The company said Tuesday that its shares will remain suspended for as long as three more months. More than 20 mutual fund investors have cut their target prices on Leshi’s stock, expecting a drop of as much as 40% from the last trading price of 30.68 yuan.

Leshi estimated its 2017 first-half losses at between 637 million yuan and 642 million yuan, a dramatic swing from a profit of 284 million yuan in the first half of 2016, according to a regulatory filing last week. The company attributed the loss to declines in customer loyalty, advertising revenue, terminal sales and membership fees affected by the parent’s debt woes.

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