LeEco’s cash problems solved ‘once and for all’ says chairman, in wake of 15bn Sunac deal

LeEco’s cash problems have been solved “once and for all” for its listed and unlisted businesses, except for its electric cars operation, with the 16.8 billion yuan capital injection from real estate developer Sunac China Holdings and other investors last week, according to the company’s founder and chairman Jia Yueting.

“For so long, LeEco has been fighting alone...Now we got a strong strategic alliance,” Jia told a news conference in Beijing on Sunday, held together with Sunac chairman Sun Hongbin.

Sunac has become the cash-starved business enterprise’s second-largest shareholder after announcing on Friday it has agreed to acquire an 8.61 per cent stake in Leshi Internet Information & Technology, LeEco’s video streaming business, for 6.04 billion yuan, as well as a 15 per cent stake in LeEco’s film production unit, Le Vision Pictures, for 1.05 billion yuan.

Sunac also agreed to acquire a 33.5 per cent stake in LeEco’s television hardware subsidiary Leshi Zhixin Electronic Technology for 7.95 billion yuan, bringing the total amount invested by Sunac to 15 billion yuan, according to a filing to the Hong Kong stock exchange.

LeEco received a further 1.8 billion yuan from other investors.

The business has been seeking external funding after Jia revealed in early November that the company with sprawling businesses, many unprofitable, was rapidly running out of money.

It had been reported by mainland Chinese media that the company had defaulted on payments to vendors and suppliers.

Jia said on Sunday that inviting Sunac as its second largest shareholder builds a synergy that means win-win cooperation for both parties.

Unlike other potential investors, Jia said Sunac has not asked for assured returns on its investments, which is why he chose the developer, instead of other suitors.

Jia said LeEco would not enter the property industry, but it will join hands with Sunac to push forward ideas in the “smart homes” sector and let the property industry into internet era.

Sun of Sunac said his investment is essentially driven by his admiration for Jia’s entrepreneurial spirit, his recognition of the company’s value, and his long-term diversification plan. Both said the investment at least in the short-term would not bring major change to Sunac’s business.

The two met on December 10, with the intention of discussing the selling of a LeEco property. But tghe meeting soon turned into what both called an “all-in”, strategic investment, based on mutual appreciation. Sun said he wants to take a “hands-off” approach after the deal, adding he can’t offer Jia too much, except for money. “It’s more like buying a stock,” he said.

Sun said he has been considering where a property company like his can head towards over the next 5-10 years, and that he has always been thinking about entering the entertainment and health sectors. “I consider LeEco very much as an entertainment company,” he said.

“I have consulted with many business associates before the deal. Many tried to dissuade me. But their arguments were not strong enough to change my mind. I don’t think they know LeEco very well.”
Leshi Zhixin widened its net losses to 730.56 million for the year ended December 2015, from 385.79 million in 2014, the statement said.

But Leshi Internet reported net profit rose 81 per cent to 199.02 million in 2015 from a year earlier, while Le Vision Pictures’ profits jumped 104.8 per cent to 128.16 million yuan in 2015 from the previous year.

Sunac executive Wang Mengnan added the developer achieved 155 billion yuan contracted sales last year, and has a total of 60 billion yuan in cash. “The money is not big, equivalent of just one to two property projects,” Wang said.

Yan Yuejin, an analyst with E-house China R&D Institute, said Sun is a maverick used to making fast execution of mergers and acquisitions, which is very evident in this case.

“It illustrates Sun’s unusual M&A philosophy, which many people don’t understand,” Yan said.

Under the ambitious Sun, Sunac has been on a buying spree for the past few years. After a failed attempt to buy out Greentown Holdings and Kaisa, last September it spent 13.8 billion yuan to buy Legend Holdings’ real estate arm. It also amassed a 20 per cent stake in Jinke Property for 4 billion yuan.

And just last week, it agreed to acquire a 6.25 per cent stake in real estate agency Lianjia for 2.6 billion yuan.

Lianjia operates the website Lianjia.com, featuring one of the largest listings of new and existing home sales and rentals in China. LeEco is Sunac’s first investment in non-property area.