LeEco admits failure to use funds rightly to turn around business

PUBLISHED : Wednesday, 28 June, 2017, 7:57pm
UPDATED : Wednesday, 28 June, 2017, 10:59pm

The billionaire founder of Chinese tech firm LeEco has admitted that the company’s cash problem is “more severe than expected”, after a 16.8 billion yuan (US$2.47 billion) investment secured at the beginning of the year failed to turn the business around.

“The cash problem of our unlisted businesses is far more severe than we expected. The cash situation in the recent months is worse than last year,” Jia Yueting, founder of the Beijing-based LeEco, said on Wednesday.

“We thought that we could use nine billion yuan to solve all the problems. But we made some mistakes and it turns out that it (the money) is not enough,” he said.

The cash situation in the recent months is worse than last year
Jia Yueting, LeEco

Jia’s admission came at the annual shareholders meeting of the company’s Shenzhen-listed arm, LeShi Internet Information & Technology Corp Beijing.

LeEco, with interests ranging from smartphones, televisions to electric cars and entertainment, secured in January 16.8 billion yuan of strategic investments – mostly from Chinese real estate tycoon Sun Hongbin’s Sunac China Holdings. The funds came about two months after Jia admitted that the company faced a cash crunch for “moving too quickly”.

Despite the capital injection, Jia has been struggling to turn the business around.

News reports of LeEco’s Chinese suppliers suing the company for unpaid bills have been non-stop in recent months.

In the US where LeEco was eager to make a splash for its further overseas expansion, the company has shed a large number of local staffers. Its once high-profile proposal to buy California-based television maker Vizio for US$2 billion, was also called off in April due to “regulatory headwinds”.

According to Jia, LeEco has gone through a “second cash crunch” since April after the management team mistakenly spent 15 billion yuan on paying debt to financial institutions.

“We should have used the money on the business,” he said, adding that the company will consolidate its unlisted businesses and even sell some assets to finance its core business development because financial institutions have been reluctant to provide further loans.

On Wednesday, LeEco-backed cash-burning ride-hailing business Yidao announced that LeEco was no longer its controlling shareholder. Yidao said a new controlling shareholder was in place, without disclosing details.

Jia’s acknowledgement of the management’s misstep in the use of funds underscored that he did not know the size of LeEco’s debts, said a senior technology analyst with a state-owned brokerage in Shenzhen who declined to be named as his research portfolio does not include the company.

In addition, he said Jia was no longer in full control of the company after the capital injection and management step-in by Sunac and its chairman, Sun.

Despite the cash crisis, Jia has not given up on his car manufacturing ambition, a business where most of LeEco’s money was spent. Jia said the goal was to land a new round of funding and start mass production as soon as possible.

“Manufacturing cars requires a lot of investment,” said Kitty Fok, managing director for research firm IDC China, adding that given LeEco’s situation, it was better for the company to team up with car manufacturers on such an ambitious venture.