Tightening cash flows compound Leshi’s debt woes

Leshi Internet Information and Technology, the listed arm of technology company LeEco, expects 5.62 billion yuan ($894 million) of debts to mature this year. The debts were only a part of the company’s total unpaid liabilities from financing and loans worth 9.29 billion yuan as of the end of last year, according to a statement issued by Leshi.

“If the company’s business volume fails to rebound to the previous level, the cash flow will tighten further, which will put us under pressure to repay the debts,” Leshi said. The company also warned investors of the risks.

The statement came after the company’s shares traded in the Shenzhen Stock Exchange dropped by the 10percent daily limit on Monday for eight straight days. Before the slumps, it had suspended trading since April last year due to capital restructuring.

But the plan was dropped due to financial woes of LeEco, which was in deep water as aggressive expansion into electric cars and other markets resulted in a rapid buildup of debts. It expects about 11.6 billion yuan in net losses for last year, due to the ongoing crisis at LeEco.

Founded in 2004, LeEco started as a Netflix-style video streaming service provider, but it rapidly grew into a tech heavyweight with a presence in smartphones, TVs, sports, media and electric cars, but ran into a cash crunch since late 2016 after expanding too fast. Leshi used to be the main listed unit of the conglomerate.

As the listed arm of Chinese internet conglomerate LeEco, the company which went public in 2010 and had

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made profits in the seven consecutive years, expects a loss of 11.6 billion yuan for last year.

Leshi said its largest shareholder Jia Yueting and related LeEco units owe it 7.5 billion yuan, but LeEco disputes the figure, saying it only owes Leshi 6 billion yuan, 3 billion yuan of which it has arranged to repay soon.

It also said in an investor briefing in January that it is seeking to acquire equity stakes in the car businesses of Jia to ensure the units repay the outstanding debt they owe it.

It said the move is an effort to resolve the financial strain and supply chain problems it faces, with stakes sought in Faraday Future, Lucid Motors and LeSEE, among others.

Debt-laden Jia, who has stepped down as chief executive of Leshi, remains the company’s largest shareholder with a 25.67 percent stake. Jia is focusing on LeEco’s automobile unit and struggling to raise capital to fund a US-based electric car startup Faraday Future.

Currently, Sunac China Holdings Ltd, a Chinese real estate developer, holds 8.56 percent shares of Leshi, and the developer’s founder and Chairman Sun Hongbin is the actual controller running Leshi.