The financial condition of China’s Internet conglomerate LeEco continues to deteriorate, dimming the future of the firm which aimed to be a global tech power. A total amount of RMB 3.8 billion (USD 559 million) receivables owned by LeEco’s listed unit Leshi Internet Information & Technology Corp. is likely to become bad debts, reported local media on Thursday.
The receivables owned by LeEco’s listed unit are due to be paid by LeEco’s other affiliated companies. LeEco founder Jia Yueting is the bondsman for these connected transactions. Whether these receivables will be paid will depend on how these related companies operate and whether Jia is able to continue serving as the guarantor.
However, Jia himself is in trouble too, endangering his identity of being a bondsman. On July 3, news broke that assets worth RMB 1.24 billion (USD 182 million) owned by Jia and his associates have been seized by the Shanghai High People’s Court as requested by China Merchants Bank.
The assets freeze turned out to be more severe for LeEco. According to an appeal it filed to the Shanghai High People’s Court, a total amount of RMB 26.16 billion was actually seized by the court.
To resolve its financial problems, LeEco is shrinking its business and cutting staff. Its latest move is to sell its ride-hailing unit Yidao Yongche to Lancapital Holdings Group, a Beijing-based investment firm.
LeEco bought 70 percent of Yidao Yongche’s shares in October 2015 and tried to incorporate it into its so-called car ecosystem. Yidao launched large scale marketing campaigns not long after joining LeEco, encouraging users to put money in their Yidao accounts and rewarding them with bonus points or LeEco products.
This “top-up and reward” campaign turned out to be a fundraising trick of LeEco. Yidao’s ousted founder Zhou Hang claimed in April that LeEco embezzled RMB 1.3 billion from Yidao to fund its other businesses including sports branch LeSports. Because of Yidao’s money shortage, its drivers were unable to withdraw money from their Yidao accounts.
Though LeEco is selling some of its businesses, car production seems to be the last one that Jia would give up.
Jia announced on his public WeChat account on July 11 that LeEco backed electric car startup Faraday Future is moving its planned luxurious SUV FF91 factory to another site. The car was scheduled to be produced in a stalled USD 1 billion Las Vegas factory.
Jia said the decision is to ensure mass production of FF91 as soon as possible. He also claimed that the factory construction plan at Las Vegas will not be cancelled even though it is curtailed.
Jia’s resolution to build the car has been demonstrated in a Weibo post on July 6 before quitting most of his posts at LeEco. This includes his position as chairman from LeEco’s listed branch.
“I quit as CEO and left positions of even more important roles at LeEco’s listed company so that I can be fully engaged in the mass production and sales of FF 91,” wrote Jia in the post.
(Top photo from Baidu Images)