Leshi sinks on resumption of trading as fund managers cut stock’s value by 75pc
About 2.4 million shares, or less than 1 per cent of the company’s outstanding shares, changed hands on Wednesday, indicating the sell-off was far from over.
Leshi Internet Information & Technology, which is owed 7.5 billion yuan (US$1.2 billion) by its founder and affiliates, tumbled by 10 per cent as the stock traded for the first time in nine months after scrapping plans for a major asset revamp.
The shares of the Shenzhen-listed company plunged by 1.53 yuan to 13.80 yuan at the close on Wednesday after being suspended since April 14. About 2.4 million shares, or less than 1 per cent of the company’s outstanding shares, changed hands, indicating there were few buyers and the sell-off was far from over.
As many as 12 asset management firms that hold Leshi’s shares, including China Post & Capital Fund Management and Harvest Fund Management, earlier cut their forecast for the fair value of the stock to 3.9 yuan to reflect the potential loss to their portfolios. The price target implies another 12 declines of the 10 per cent daily limit.
“The stock price will most probably be halved,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “Leshi almost has no cash flow and is in deep financial trouble. Until the debt problem is solved, there’s no chance for the stock to reverse the decline.”
At the centre of the storm is Leshi’s controversial founder and controlling shareholder, Jia Yueting, who is now living in the US despite being ordered by the securities regulator to return to China to tackle the company’s debt issues.
While investors and the Shenzhen Stock Exchange accuse him of seizing funds from the listed unit, Jia and his wife have defended the move by saying that all the money has been invested in a US plant that plans to make electric cars. Even the family has run up a mountain of personal debt.
Leshi said in a statement to the Shenzhen exchange on Tuesday that it had scrapped the plan to buy out an affiliated filmmaking unit because the acquisition target was also found to have debts worth 1.71 billion yuan owed by Jia and other units under his control.
In a separate exchange filing, the company said it may post a full-year loss for 2017 – the first since its listing in 2010 because of the huge amount of current receivables linked to Jia.
Jia, who already resigned as Leshi’s chairman, still has a controlling 26 per cent stake in the listed company through his LeEco Group, a video-streaming and sports online broadcaster that expanded into smartphones and new-energy cars.
China Post & Capital Fund was the biggest holder of Leshi among mutual funds as of the end of last year. The four funds under the firm held a combined 73 million shares, according to data compiled by Great Wisdom.
Wednesday’s loss erased 6.1 billion yuan from Leshi’s market cap, which currently stands at 55 billion yuan.
The ChiNext index of start-ups remained immune to Leshi’s woes, rebounding 2.6 per cent on Wednesday. Leshi, which had held the fourth-largest weighting on the index, lost its place on the gauge this year as part of Shenzhen bourse’s regular review in December.