Yidao’s financial woes not due to ‘misappropriation’ of funds, says LeEco

PUBLISHED : Tuesday, 18 April, 2017, 5:07pm
UPDATED : Tuesday, 18 April, 2017, 10:15pm

The founder of Yidao Yongche, the premium vehicle-sharing company controlled by LeEco, has admitted the company has cash flow problems but blamed the situation on misappropriation of funds by the controlling shareholder – an allegation LeEco has rejected.

“As far as I know, Yidao is indeed in financial troubles and the most direct cause is LeEco’s misappropriation of 1.3 billion yuan in funds owned by Yidao,” Zhou Hang, who founded Yidao in 2010, said in a statement on Monday.

Yidao’s operations have already been affected by the cash-strapped LeEco, with its drivers accusing the company of not paying them. Users have also been unable to book rides even after paying money via the app due to the scarcity of cars currently in service.

Zhou said these incidents were not simple debt disputes, but rather could lead to wider protests by drivers and users and even affect social stability.

A joint statement from LeEco and Yidao on Monday refuted Zhou’s allegation, stating that LeEco offered one of its buildings as collateral to help Yidao borrow 1.4 billion yuan (US$203 million), of which 1.3 billion yuan was for LeEco’s automobile development and the remaining 100 million yuan was to be used for Yidao’s business operations.

The statement said Zhou, as chief executive and second-largest shareholder of Yidao, was well aware of the details of the loan deal. It added that he has made false statements that have damaged the “reputation” of Yidao and LeEco.

Chinese conglomerate LeEco gradually took over management of Yidao after investing US$700 million for a 70 per cent stake in October 2015, becoming the controlling shareholder of the company.

Noting his diminishing role in the company’s day to day management, Zhou said he expects the LeEco team to “accept the constructive plans offered by some external partners” to solve current problems, without elaborating on the details of these offers.

In early April, reports suggested Zhou had left Yidao to join Shunwei Capital as a partner. Shunwei was co-founded by Lei Jun, the chief executive of smartphone maker Xiaomi.

“LeEco has never misappropriated any users’ cash deposits in Yidao but has [invested] nearly 4 billion yuan into the company to support its operation,” it added.

In March, Yidao denied financial troubles after media reports suggested the company was unable to make payments to several of its service suppliers and to its drivers.

A Yidao driver surnamed Li told the South China Morning Post that over the past few months it has become increasingly difficult to retrieve earnings from Yidao and that a large number of his peers have decided to quit the business.

“Many drivers chose to go to Yidao’s Shenzhen office to collect their income. By doing this, they will also have to terminate their contract with Yidao as the same time,” said Li.

Users have also bombarded Yidao’s official Weibo account with complaints because they have been unable to book a ride due to the scarcity of vehicles in services, even after adding money to the app.

According to a field test conduct by the Post at various locations in Shenzhen during the past three days, most of the rides that were booked were not picked up by any drivers even after 15 minutes of waiting time. Ride requests that automatically doubled the price to encourage drivers to respond were also not answered.

Meanwhile, Yidao hasn’t stopped heavily promoting its services with incentives such as a 3,200 yuan balance for a 2,000 deposit in the app.

In November, LeEco admitted to a cash shortage and vowed to cut costs and scale down its business expansion.

A Bloomberg report on Saturday, citing an unnamed source, said LeEco’s global head of corporate finance, Winston Cheng, is leaving the company.