Freezing of assets set to decrease investor confidence in Leshi unit
With 15.9 billion yuan ($2.34 billion) worth of stocks frozen by a court, Chinese billionaire Jia Yueting and his internet company LeEco are facing a "bigger than ever" crisis.
Leshi Internet Information and Technology Corp, the listed video-streaming unit of LeEco, said in a filing on Tuesday that unpaid debts prompted a local court to freeze its founder Jia's 519 million shares, around 26 percent of Leshi's stock.
That equals 15.9 billion yuan, given that the market value of Leshi stands at 61.2 billion yuan, and accounts for 99 percent of Jia's holding in Leshi.
The account will remain frozen for three years. Shanghai High People's Court announced the ruling because LeEco failed to pay interest due on bank loans taken out to fund its smartphone business. Jia used his shares in Leshi as collateral for the loans.
Lu Zhenwang, CEO of Shanghai-based Wanqing Consultancy, said although the shares were frozen due to Jia's personal behavior, it will undoubtedly decrease investors' confidence in the Shenzhen-listed Leshi unit.
"It will have negative impact on LeEco's ongoing efforts to integrate its film business in Leshi," Lu said. "This is a bigger than ever crisis for Jia and LeEco."
Leshi's stocks have been suspended from trading since April. On Tuesday, LeEco confirmed that another 1.24 billion yuan ($183 million) in assets belonging to Jia, his wife and three affiliated companies, had been frozen by the court due to unpaid debt.
LeEco has been wrestling with a financial squeeze since last November, with Jia admitted publicly that its expansion into smartphone, automobile, cloud and internet finance business had been a step too far.
The cash crunch worsened in recent months, although the company managed to raise a 16.8 billion yuan investment from real estate developer Sunac China Holdings and other investors at the beginning of the year.
Shen Meng, director of boutique investment bank Chanson & Co, said it would be possible for Jia to unfreeze his Leshi stocks through negotiations with banks.
"But the chances are very low given that LeEco is so weak financially that almost no bank is willing to lend Jia money," Shen said.
"In fact, Jia's influence is fading, as Sun Hongbin, chairman of Sunac, becomes the real leader of LeEco's quality assets, namely the video-streaming and smart television business," he added.
In May, Jia stepped down as chief executive of Shenzhen-listed Leshi Internet Information and Technology Corp, although he remains its chairman.