Sunac washes hands of embattled Leshi, takes $2.6b charge

Sunac China described as “a failure” its investment in debt-laden Leshi Internet Information & Technology Corp Beijing and said it would book a charge of $2.6 billion, sending Leshi’s shares down as much as 8 percent on Thursday.

Leshi is unable to raise more funds, said Sunac Chairman Sun Hongbin, who was widely viewed as a white knight after he announced a 15 billion yuan ($2.38 billion) investment for the crumbling LeEco group, of which Leshi has been the main listed vehicle.

Sun resigned as chairman of Shenzhen-listed Leshi in February, just eight months after he took on the job, and he explained at a Sunac earnings briefing on Thursday that the move was so he could speak freely about the videostreaming provider.

Sunac, China’s No.4 property developer, was “preparing for a transformation to sustain growth” as the real estate market is slowing down and “we paid a price,” Sun said.

Leshi, which is battling the fallout from a cash crunch at founder Jia Yueting’s LeEco.

LeEco was once China’s Netflixto-Tesla contender, but ran into cash problems in late 2016 after expanding too much, too soon. Relief came in January 2017 in the form of the cash infusion from Sunac into three of LeEco’s units.

Sun said there were still prospects for LeEco’s TV and movie business, the two other units he had invested in, but he was willing to sell his Leshi stake if there was buying interest.

Leshi has a market capitalization of about 20 billion yuan and held 4.7 billion yuan debt as of the end of September.

Sunac executives, seeking to reassure investors, said the developer would not have to worry about a negative impact from Leshi in the future.

Leshi’s stock has shed about twothirds of its value so far this year.

Sunac shares edged up, as the company distanced itself from Leshi. The stock had earlier dipped after the company announced its annual results.

Sunac’s core profit for 2017 more than tripled to a record 11.12 billion yuan, helped by a big jump in revenue, while its gearing ratio fell to 66.9 percent from 72.2 percent at end-June.

However, the gearing ratio, a key indicator of the company’s leverage, would be higher if perpetual capital securities were categorized as debt instead of equity.

Controlling debt will be in focus over the next two years, and the company will do so by speeding up inventory clearing to raise cash flow, as well as controlling the pace of acquisitions and investments, Sunac CEO Wang Mengde said.

“The property tightening policies now have a large impact on the market,” Sun said.

Sunac said it expects tourism projects bought from Dalian Wanda Group in July will drive earnings in the next three to five years.