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China property

Chinese magnate Sun Hongbin says his 15 billion yuan LeEco bailout brought tears to his eyes

Sunac, whose gearing had almost doubled to 394 per cent, said it’s aiming to pare debt down to 90 per cent by the end of 2018, and to 70 per cent a year later.

PUBLISHED : Friday, 01 September, 2017, 7:30pm
UPDATED : Friday, 01 September, 2017, 7:30pm

Sun Hongbin is nothing if not indefatigable. The real estate magnate, exonerated from a four-year jail sentence for embezzlement, sprang back to build Sunac China over a decade into one of the country’s most aggressive asset buyers and biggest property developers.

Sunac bought more than a dozen theme parks from tycoon Wang Jianlin’s Dalian Wanda Group in July for 43.8 billion yuan, part of the largest real estate transaction in the country’s corporate history.

But if there’s anything that causes Sun to pause, or bring a tear to his eyes, it’s his decision in January to pour 15 billion yuan (US$2.28 billion) to bail out fellow Shanxi entrepreneur Jia Yueting and his LeEco group of companies, which has run up huge debts running a business that stretched from video streaming to movies to making an electric car.

“I’ve never had any regrets my entire life, until I invested in LeEco,” Sun said during a Hong Kong press conference announcing Sunac’s interim results. “If I can’t turn LeEco back to normal,that would be a regret.”

The comment is a strong admission of setback for Sun, whose company has spent an estimated 100 billion yuan so far this year on acquisitions. While his purchases allowed him to incorporate earnings from subsidiaries, boosting Sunac’s first-half profit by 16-fold to 1.3 billion yuan, the LeEco acquisition has left Sun with a financial hole that could not be filled.

Jia, who was burning through cash building a US$1 billion car plant in the desert of Nevada, dragged his feet in stemming the financial bleeding, Sun said. That forced Sunac to write off 1.1 billion yuan of its investments, pushing the developer’s investment in LeEco into a 1.5 billion yuan loss in the first half.

“The problem is Jia was indecisive,” Sun said during the Hong Kong press conference, holding back tears. “He should have sold troubled businesses earlier.”

Jia, who said via social media that he had been in the US to try turn around his cash-starved car venture, could not be reached to comment.

Sunac, the second-largest shareholder in LeEco, replaced Jia as chairman of the troubled company in July.

“This may be the beginning of more writedowns of the company’s investments” in LeEco, Macquarie Research analysts wrote in a note.

LeEco’s business model must change, Sun said. Already, the company with Sun at the helm was able to turn in revenue of 40 million yuan by switching its exclusive broadcasting right of a Chinese drama series into a distribution right, he said.

Sunac’s first-half core earnings, excluding one-off items such as gains from business consolidations, currency losses, disposals, was actually a loss of 530 million yuan, because of an increase in sales and financing expenses and losses from associated and joint ventures, said CIMB’s analyst Raymond Cheng, who recommends investors “reduce” Sunac’s shares.

More alarmingly, Sunac’s net gearing had almost doubled to 394 per cent, from 208 per cent at the of 2016, the highest among China’s property developers. The company is aiming to pare its debt down to 90 per cent by the end of 2018, and 70 per cent in 2019, by slowing down its pace of acquisitions, while speeding up the pace of selling property projects.

Sunac sold 165 billion yuan in property projects in the first eight months of 2017, more than double the same period last year. It’s a result that’s given the company confidence to raise its full-year contracted sales target to 300 billion yuan.

On the Hong Kong exchange, Sunac’s shares fell as much as 5.7 per cent to HK$22.15 in post-results trading, before settling the day at HK$22.80.

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