Due dili­gence re­port high­lights big losses at five of the trou­bled firm’s busi­ness units

China Daily (Hong Kong) - - BUSINESS - By MA SI masi@chi­nadaily.com.cn

Chi­nese ac­tress Gan Wei is bet­ter known as the wife of Jia Yuet­ing, founder of Chi­nese in­ter­net com­pany LeEco, which was once a suc­cess­ful tech story but now faces a se­vere cash crunch.

Gan re­cently for­warded Jia a post on Sina Weibo, a mi­croblog plat­form, which says that “Life may be fraught with hard­ships, but hap­pi­ness should never be af­fected by that. Even if life is hard, I still love it.”

Gan has been very sup­port­ive ever since Jia pub­licly ad­mit­ted in Novem­ber that the com­pany’s ex­pan­sion ef­forts have gone too far and the trou­bled Chi­nese ty­coon was bom­barded with ques­tions and doubts about his am­bi­tious busi­ness plan and his abil­ity to rein­vig­o­rate LeEco.

But the fi­nan­cial cri­sis may be far more se­vere than Gan and Jia had ex­pected. The 21st Cen­tury Busi­ness Her­ald quoted a due dili­gence re­port from an undis­closed fi­nan­cial in­sti­tu­tion that said LeE- co has seven busi­ness units which span smart­phones, finance, sports and au­to­mo­biles, but only its video-stream­ing unit and movie busi­ness are mak­ing money. The oth­ers are all in the red.

In the first three quar­ters of 2016, LeEco recorded 9.73 bil­lion yuan ($1.43 bil­lion) in losses, although its rev­enue stood at around 40 bil­lion yuan, the 21st Cen­tury Busi­ness Her­ald said.

Smart­phones are the big­gest cul­prit, con­tribut­ing 5.66 bil­lion yuan in losses. Its sports and au­to­mo­bile units posted 2.63 bil­lion yuan and 1.34 bil­lion yuan in losses re­spec­tively, the re­port added.

LeEco was not im­me­di­ately avail­able for com­ment.

Al­most at the same time, five investment funds, all in­vestors in Leshi In­ter­net In­for­ma­tion and Tech­nol­ogy Corp, the listed videostream­ing unit of LeEco, low­ered their val­u­a­tion of Leshi’s stock.

ICBC Credit Suisse As­set Management Co Ltd, for in­stance, low­ered its val­u­a­tion to 22.37 yuan per share. In com­par­i­son, Leshi stock closed at 30.68 yuan be­fore its shares were halted from trad­ing in April. The sus­pen­sion con­tin­ues. LeEco did not dis­close when the shares will re­sume trad­ing.

This equals Leshi shares de­clin­ing to their 10 per­cent daily limit for three con­sec­u­tive days, an­a­lysts said.

Shen Meng, di­rec­tor of bou­tique investment bank Chan­son & Co, said LeEco has been suf­fer­ing from a num­ber of set­backs, which con­sid­er­ably di­min­ished in­vestor con­fi­dence.

Last month, Shang­hai High Peo­ple’s Court froze 15.9 bil­lion yuan worth of Jia’s stocks in Leshi due to un­paid in­ter­est debt.

The rul­ing came as a China Mer­chants Bank branch ap­plied for a prop­erty preser­va­tion or­der in June to block the 1.24 bil­lion yuan of as­sets owned by Jia, his wife and three af­fil­i­ated com­pa­nies.

Shen said LeEco’s cash flow prob­lems were wors­en­ing, de­spite a 16.8 bil­lion yuan investment from real es­tate devel­oper Sunac

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