More than a dozen Chinese celebrities, including film director Zhang Yimou, may not be able to see high returns from their investment in affiliates of LeEco, becoming the latest victims of the Chinese tech major's cash crunch.
Leshi Internet Information & Technology Corp, the listed company of LeEco, announced on Nov 8 that it may not be able to complete the acquisition of Le Vision Pictures in 2016, which conflicts with its earlier announcement in May that it will acquire 100 percent of Le Vision Pictures for up to 9.8 billion yuan ($1.42 billion).
The announcement comes as bad news for some of the highest paid stars as a media report said that as many as 19 celebrities, including Zhang Yimou and top Chinese actor Huang Xiaoming, invested more than 150 million yuan in LeEco affiliate Le Vision Pictures. Among those celebrity shareholders in the company's sports subsidiary Le Sports, top Chinese actress Liu Tao ranks as the top financial contributor with a 50-million-yuan investment.
Shen Meng, director of Chanson & Co, a boutique investment bank in China, said Le Vision Pictures have burnt too much money on running projects and indicated the outlook was bleak for investment in Le Sports or Le Vision Pictures.
"For the celebrity investors, there is a high possibility that their investment will not turn into cash easily," Shen said. "But it is also not a huge loss for them due to the original cooperation model. LeEco needed their fame, and they desired profits."
"Two reasons can explain why Leshi was unable to acquire it this year. On the one hand, spending such a lot of money will not bring values to Leshi's other investors. On the other hand, the valuation of Le Vision is too high." he said.
The A-list stars' challenge in getting high returns on their investment is only the spillover effect of the recent cash crunch of LeEco.
LeEco started as a video-streaming service provider akin to Netflix Inc in 2014, but it rapidly grew into a firm with a presence in smartphones, TVs, cloud computing, sports and electric cars. However, its sprawling business puts a lot of pressure on cash flow, as its founder and CEO Jia Yueting admitted in early November that the firm has problems in supply chain management and capital issues.