Celebri­ties take hit from LeEco woes

China Daily (USA) - - BUSINESS - By OUYANG SHIJIA and MENGJING Con­tact the writ­ers through ouyang­shi­jia@ chi­nadaily.com.cn

More than a dozen Chi­nese celebri­ties, in­clud­ing film di­rec­tor Zhang Yi­mou, may not be able to see high re­turns from their in­vest­ment in af­fil­i­ates of LeEco, be­com­ing the lat­est vic­tims of the Chi­nese tech ma­jor’s cash crunch.

Leshi In­ter­net In­for­ma­tion& Tech­nol­ogy Corp, the listed com­pany of LeEco, an­nounced on Nov 8 that it­may not be able to com­plete the ac­qui­si­tion of Le Vi­sion Pic­tures in 2016, which con­flicts with its ear­lier an­nounce­ment in May that it will ac­quire 100 per­cent of Le Vi­sion Pic­tures for up to 9.8 bil­lion yuan ($1.42 bil­lion).

The an­nounce­ment comes as bad news for some of the high­est paid stars as a me­dia re­port said that as many as 19 celebri­ties, in­clud­ing Zhang Yi­mou and top Chi­nese ac­tor Huang Xiaom­ing, in­vested more than 150 mil­lion yuan in LeEco af­fil­i­ate Le Vi­sion Pic­tures. Among those celebrity share­hold­ers in the com­pany’s sports sub­sidiary Le Sports, top Chi­nese ac­tress Liu Tao ranks as the top fi­nan­cial con­trib­u­tor with a 50-mil­lion-yuan in­vest­ment.

Shen Meng, di­rec­tor of Chan­son & Co, a bou­tique in­vest­ment bank in China, said Le Vi­sion Pic­tures have burnt too much money on run­ning projects and in­di­cated the out­look was bleak for in­vest­ment in Le Sports or Le Vi­sion Pic­tures.

“For the celebrity in­vestors, there is a high pos­si­bil­ity that their in­vest­ment will not turn into cash eas­ily,” Shen said. “But it is also not a huge loss forthem due to the orig­i­nal co­op­er­a­tion model. LeEco needed their fame, and they de­sired prof­its.”

“Two rea­sons can ex­plain why Leshi was un­able to ac­quire it this year. On the one hand, spend­ing such a lot of money will not bring val­ues to Leshi’s other in­vestors. On the other hand, the val­u­a­tion of Le Vi­sion is too high.” he said.

The A-list stars’ chal­lenge in get­ting high re­turns on their in­vest­ment is only the spillover ef­fect of the re­cent cash crunch of LeEco.

LeEco started as a videostream­ing ser­vice provider akin to Netflix Inc in 2014, but it rapidly grew into a firm with a pres­ence in smart­phones, TVs, cloud com­put­ing, sports and elec­tric cars. How­ever, its sprawl­ing busi­ness puts a lot of pres­sure on cash flow, as its founder and CEO Jia Yuet­ing ad­mit­ted in early Novem­ber that the firm has prob­lems in sup­ply chain man­age­ment and cap­i­tal is­sues.

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