Chinese tech firm that once vowed to disrupt Tesla and Apple faces delisting under pile of unpaid debt

Top businessman who had briefly stepped in as chairman tells Chinese media that Leshi Internet Information & Technology is ‘insolvent’

PUBLISHED : Monday, 26 March, 2018, 4:22pm
UPDATED : Monday, 26 March, 2018, 11:43pm

The Chinese tech company that once called Apple “outdated” and vowed to disrupt Tesla is facing delisting in China, leaving billions of yuan in unpaid debts and hundreds of thousands of retail investors out of pocket.

Leshi Internet Information & Technology, founded in 2004 by Jia Yueting – who went on to become a poster boy for China’s emerging tech prowess, had trading in its shares suspended on Monday after a former chairman of the company, who poured some 15 billion yuan (US$2.4 billion) into it in a rescue bid, resigned earlier in the month.

“Basically Leshi has become insolvent. It has 7.5 billion yuan worth of debts due by this year, mostly directly owed by unlisted related parties … but it has no valuable assets that could be sold to repay the debts for now … the company is facing an extremely big risk of delisting,” Sun Hongbin, the former chairman, told mainland media firm

Sun, founder and chairman of property developer Sunac China Holdings, had taken over from Jia last July. He resigned on March 14, calling his investment in Leshi “a failure”.

“The resignation decision was made mainly out of consideration for retail investors. Some use my name as a reason for continuing to buy Leshi. Retail investors do not read the fundamentals of the company, they just curse me when they lose money. I cannot afford this,” Sun said in the interview published on Sunday.

Leshi had around 185,875 retail investors in the third quarter of last year, according to the company, the latest official figure available. But Chinese media firm Caixin said that small investors rushed to buy into the company after its previous share suspension ended on January 24 this year, betting it would recover. Caixin said the number of retail investors increased by more than 80 per cent to 336,000 in 13 trading days.

Leshi posts US$1.8 billion loss for 2017

A delisting would mark a spectacular fall from grace for the company. Founded as a video streaming website, Leshi became the centre of the LeEco conglomerate that made smartphones and developed a self-driving smartcar aimed at taking on Tesla.

Jia, who famously referred to Apple as “outdated and losing momentum in China” in an interview with CNBC in April 2016, was ambitious to build a “LeEco ecosystem,” where he could cross-sell content, movies, TV shows and music to owners of LeEco cars and televisions.

But in late 2016 the business began to crumble as the rapid expansion left it short of cash. Its shares were suspended from April 2017 to January this year, while Jia has remained in the US since July despite repeated requests from China’s regulators for him to return and deal with the debt issue.

Last July, banks were given court approval to freeze three unlisted companies controlled by Jia and his wife, and their family assets, together worth more than 1.2 billion yuan.

LeEco’s Jia stays in US chasing his electric car dream, leaving wife and brother to handle crumbling empire

Jia resigned as chairman of Leshi and handed over the position to Sun that month, but remains a controlling shareholder with 25.7 per cent stake.

Leshi said in its filing to the Shenzhen bourse on Monday that “media reports” may have had a big influence on the share price, and that trading would resume after the company issued clarifications on the issues touched on in the reports.