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LeEco-Backed Smartphone-Maker Gets Lifeline From Convertible Bond

By Yang Ge
Coolpad is expected to post an operating loss of up to HK$800 million ($102 million) in the first half of this year. Photo: IC
Coolpad is expected to post an operating loss of up to HK$800 million ($102 million) in the first half of this year. Photo: IC

Coolpad Group Ltd., the money-losing smartphone-maker backed by cash-challenged online video firm LeEco, said it will raise fresh funds by selling convertible bonds to a buyer that could become its second largest stakeholder.

Coolpad said it will sell the HK$582 million ($74.5 million) worth of convertible bonds to Centralcon Enterprises Co. Ltd. The bonds can later be converted to Coolpad shares for HK$0.581 apiece, representing a 20% discount to the company’s price when its shares were last traded in Hong Kong. Coolpad shares have been suspended since late March, when they traded at HK$0.72.

If it exercises its right to convert all of the bonds into shares, Centralcon would become Coolpad’s second largest shareholder with 16.6% percent of the company. LeEco’s stake would drop to 24% from a current 28.8%. Centralcon was founded in 1993, and is engaged primarily in real estate- and finance-related businesses.

“The directors believe that the issue of the convertible bonds represents an opportunity to enhance the financial position of the company, thereby providing working capital for the business development of the group,” Coolpad said. “The directors also believe that the issue of the convertible bonds will provide funds for the company without causing immediate dilution effect on the shareholdings of existing shareholders, and the capital base of the company will be enlarged if the conversion right was exercised.”

Coolpad has not filed any earnings reports this year. But in April it said it recorded an operating loss of about HK$460 million in the first quarter of 2017, and expected to post an operating loss of HK$600 million to HK$800 million in the first half of the year. It added that it expected its sales for the first half of this year to fall by more than 50%.

As its financial woes mounted, the company’s CEO resigned at the end of August

LeEco first bought into Coolpad in 2015 when the former was getting into the smartphone business. The purchase was part of a broader expansion spree by the company as it pursued a goal of creating an ecosystem of products and services centered on its core video business.

But a year ago LeEco acknowledged it had expanded too quickly, and the company has been in a cash crunch ever since. Shares of its publicly-listed unit have been suspended since April while it works on a restructuring plan. It has not announced long-term plans for its smartphone business, though some have speculated that and other newer units could be spun off to focus on its original online video business.

Contact reporter Yang Ge (geyang@caixin.com)

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