LeEco unit suspended from trading after shares plunged amid layoff fears

Leshi Internet Information and Technology’s shares fell 7.85 per cent on Tuesday, reportedly triggering margin calls by brokerages

PUBLISHED : Wednesday, 07 December, 2016, 11:55am
UPDATED : Wednesday, 07 December, 2016, 11:20pm

Chinese internet giant LeEco’s Shenzhen-listed arm, Leshi Internet Information and Technology Corp, was halted from trading on the stock exchange on Wednesday after a share price plunge that was said to have triggered margin calls by brokerages and financial lenders.

The Shenzhen bourse said in a statement that trading in Leshi was suspended before market opening on Wednesday, pending an announcement. No further detail was provided.

The trading halt came after Leshi’s shares plummeted 7.85 per cent on Tuesday to close at 35.8 yuan amid mounting concerns that the company may layoff staff to help trim costs as it undergoes restructuring. The share price had fallen to an intraday low of 35.01 yuan.

Several mainland media reports cited rumours among traders that margin calls on the credits of LeEco’s billionaire founder Jia Yueting and his brother Jia Yuemin were triggered when the stock price slipped to below 35.21 yuan on Tuesday.

A LeEco spokeswoman said that the stock price mentioned in the media reports was “speculation”.

According to Wind, a Chinese financial data and analysis company, LeEco’s founder and his brother pledged more than 84 per cent of their combined holdings in Leshi as collateral for more than 10 billion yuan of loans. Analysts had said any decline in Leshi’s share price could trigger a margin call on their credits and exacerbate their financial woes.

The company’s share price has fallen by more than 40 per cent from its recent high in early July.

An analyst with a state-owned brokerage in Shenzhen said the large amount of shares pledged by Jia and his brother makes the situation difficult for their lenders which are mainly securities companies.

Trading suspension for now is the only option as the quick drop in Leshi’s stock price would be likely to spill over into the wider market, said the analyst, who declined to be named as the issue is sensitive.

He said it would take a company with considerable financial strength, such as property giant Wanda, to bail out LeEco.

Coolpad, the Hong Kong-listed mobile phone unit of LeEco, plunged 12.5 per cent to close at HK$0.7 on Wednesday.

Jia admitted in November that LeEco, which has heavily invested in technology products ranging from electric cars to smartphones, was facing capital pressure.

He said the company’s cash flow problems were largely due to a weak capital structure and a failure to raise enough external funds to keep up with its rapid expansion plans. He pointed out that expensive ventures such as the car division had already received over 10 billion yuan from company funds in the early stages of development.

LeEco also later said in an internal letter to employees that it would “temporarily hold horizontal expansion in the Asia-Pacific market”, as it shifts it’s priorities to “focus on rapid cash flow growth” and increasing the quantity and quality of its user base globally.

The high-flying company has undergone some restructuring and is trimming down its personnel to trim costs.

LeEco’s sports unit, LeSports, has said it plans to cut 20 per cent of its staff, according to a report by mainland news website . However, the company said it would reorganise staff to optimise operations.

The company has undergone several management restructurings in the last months, including the appointment of a new chief executive, Anthony Gao, for its Asia-Pacific operations, replacing Mok Chui-tin.

Earlier this week, LeEco also put chairman Gao Fei in charge of profitability for its video-streaming business. Gao said that the company will begin providing a subscription service for movies and will make a bigger push into producing more original content.