Tencent co-founder brands LeEco a ‘Ponzi scheme’
The troubled internet conglomerate’s Shenzhen-listed arm, Leshi, extends a suspension of its shares by up to another three months
Embattled Chinese internet conglomerate LeEco has been branded a “Ponzi scheme” in an online comment made and endorsed by some of the country’s leading lights in technology.
The debt-ridden group of technology companies founded by billionaire Jia Yueting declined to comment on the scathing critique posted by Tencent Holdings co-founder Zeng Liqing, and “liked” by the company’s chairman Pony Ma Huateng, and Xu Xiaoping, one of mainland China’s foremost angel investors.
“It [LeEco] is obviously a Ponzi scheme. You don’t belong in the investment market or entrepreneurial world if you can’t see that,” wrote Zeng, co-founder and advisor emeritus at Hong Kong-listed Tencent, one of the world's biggest internet companies.
Zeng's damning appraisal was made at the weekend in a post on WeChat, Tencent’s ubiquitous social media app. Ma and Xu later “liked” the post.
When contacted by the Post about Zeng’s remark, Chen Xuanyi, a spokesman for LeEco, said the company had “no comment” to make.
The latest blow to LeEco – once a high-flying technology empire with a bright future – comes as it battles to stay afloat amid a mountain of debt, huge losses and court orders freezing its assets.
That crisis has spilled into the company's Shenzhen-listed arm, Leshi Internet Information & Technology Corp, which said on Tuesday its shares will remain suspended for up to another three months.
In a statement to the bourse before the market opened on Tuesday, Leshi said it was extending a freeze on share trading which has been in place since April. Leshi said it plans to push forward with a “major asset restructuring plan”, which could pave the way for the injection of LeEco’s film production affiliate, Le Vision Pictures, into the listed business.
But some analysts said the challenges facing Leshi and its parent are too big and wide-ranging to be averted by such a restructuring plan.
“It doesn’t matter whether or not Le Vision Pictures can be injected into Leshi in the end. What matters most is how Leshi can turn around its business, which is making big losses, and how it can regain momentum, given all the bad news regarding LeEco,” said Hu Jiaming, a Shanghai-based analyst with Capital Securities.
Leshi estimated its first-half loss this year to be between 636.7 million yuan (US$94.2 million) and 641.7 million yuan, a dramatic swing from its 284.4 million yuan profit in the same period last year, according to a filing on Friday to the Shenzhen stock exchange. The company attributed the loss to declines in customer loyalty, advertising revenue, terminal sales and membership fees.
Leshi’s trading has been suspended since April 17. The extension of that freeze is expected to buy Leshi some time to cope with the unprecedented challenges facing its cash-strapped parent company.
Having started out as a Netflix-style video streaming service, the Beijing-based LeEco later positioned itself as an Apple slayer and Tesla challenger by making expensive forays into manufacturing smartphones and televisions, and electric car development. But the rapid expansion soon began to drown the company in debt.
Many of Jia’s assets have been frozen by court orders, as creditors encountered difficulties in getting their money back.
Not everyone, however, agrees with Zeng’s assessment on how the company operates. In response to the Ponzi scheme accusation, Sun Hongbin, the chairman of Sunac China who provided 15 billion yuan to bail out Jia’s LeEco, urged the public to be more tolerant towards “failure”.
“Jia is still young,” Sun said on Sunday in a WeChat post. “We should support the entrepreneurial spirit [of Jia].”
Sun, Leshi chief executive Liang Jun and Zhang Zao, the chief executive of LeEco’s movie arm, were installed as the new directors in Leshi’s boardroom by shareholders at a meeting on Monday, following Jia's resignation as chairman in early July.
Leshi is due to choose its new chairman on Thursday. There is high expectation Sun will replace Jia in that role, but he told mainland media on Tuesday that he has little interest in the position.
“They [Leshi] are a small business, while Sunac is a big business worth hundreds of billions yuan,” Sun was quoted as saying by sina.com.