Crisis Grows at China's LeEco After Courts Freeze Chairman's Millions

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LeEco chairman Jia Yueting

The incident puts further pressure on the conglomerate's film studio Le Vision Pictures, which co-produced Matt Damon's 'The Great Wall' and owns a joint venture with former Paramount president Adam Goodman.

Troubled Chinese conglomerate LeEco, the parent company of Le Vision Pictures, was plunged deeper into crisis on Tuesday after a Shanghai court froze $182 million in assets controlled by its chairman Jia Yueting over unpaid debts.

The latest development suggests that the billions of dollars recently raised by LeEco have not been enough to forestall its downward spiral. Jia, who once boasted that his conglomerate would rival Apple and Tesla on the world stage, admitted as much just days before the asset freeze, saying that the company's cash problems were "far worse than expected."

The frozen assets belonged to Jia, his wife, and three LeEco affiliates, China's state news agency Xinhua reported.

As recently as last year, Jia was China's 37th richest individual, with an estimated net worth of $4.5 billion, according to Forbes. Today, he is believed to be worth billions less.  

Jia founded LeEco in 2004 as LeTV, an internet video service that grew to become an early market leader and was once dubbed the "Netflix of China." The company then branched out into content creation to feed its online services, aggressively acquiring local and international sports rights and launching film and TV studio Le Vision Pictures, to be headed by influential industry figures like filmmaker Zhang Yimou and producer Zhang Zhao.

The beginnings of the company's very public unraveling — still underway — stems from Jia's next bold bid: for LeEco to become a world-leading maker of devices, producing everything from smartphones and smart TVs, to high-concept electric cars and even a bicycle boasting a video screen and lasers. Espousing a content-centered vision of technology's future, Jia's ambition was for LeEco to create devices that touch consumers at each moment of their day — in the home, on the road and in their hands — delivering LeEco-produced and licensed entertainment at every step.

Not content to conquer the Middle Kingdom market with this techno-utopian vision, Jia also sought to go fully global.

After releasing numerous local hits — such as the critically derided by wildly successful Tiny Times franchise — Le Vision Pictures mounted China's largest U.S. co-production ever with Legendary Entertainment, the English-language tentpole The Great Wall. Despite Matt Damon in the lead and a lavish $160 million production budget, the film proved a global box-office bomb, losing at least $75 million. But still committed to forging ties with Hollywood, LeEco went on to acquire former Paramount president Adam Goodman's startup production company Dichotomy last fall. Rebranding the L.A.-based entity Le Vision Entertainment, LeEco tasked Goodman with developing and producing film projects for the worldwide market.

Last August, Jia boosted his U.S. expansion with plans to acquire Vizio — the Irvine, Calif.-based smart TV maker — for $2 billion. And on the electric car front, he poured billions into LeEco's own Chinese car brand, LeSee, and into the struggling U.S. auto startup Faraday Future, of which it remains the primary backer.

Nearly all of the profligate investing was financed by deep borrowing. According to The New York Times, LeEco has brought in at least $6 billion from institutional and lay investors since the start of 2016.

Jia first admitted that the company was running out of rope last fall, conceding he had attempted to expand far too quickly. LeEco then received several sizable loans to cover the cash crunch — one for $600 million last November and another for $2.2 billion in January.

But during a shareholder meeting last week, Jia said the company had misallocated those funds and was struggling to secure additional loans. 

"The cash problems at the non-publicly traded businesses are more serious than when this crisis erupted," he told investors, according to a transcript. "Our businesses are constantly using cash to repay loans, having a huge impact on their operations."

In April, LeEco abandoned the planned takeover of Vizio after it was unable to come up with the funds. The company also has laid off large numbers of employees in China and sold other assets, including its ride-hailing service, Yidao Yongche, which hadn't paid its drivers for months.  

Meanwhile, the backlash from Jia's creditors — large and small — continues to grow. Several suppliers owed money by LeEco's mobile phone unit have staged weeklong sit-ins in the lobby of the company's Beijing headquarters, demanding to be paid (to no avail).

China Merchants Bank (CMB) delivered the most personal blow to date by freezing Jia's funds through the Shanghai courts. Leshi Internet Information and Technology Corp, the Shenzhen stock exchange-listed internet video unit of LeEco, issued a statement late Tuesday, saying the Shanghai court had frozen Jia's 26.03 percent stake in the company — and that the freeze would remain in place for three years.

"CMB's Shanghai branch repeatedly urged repayment without success and so sought to use legal means," the bank said in a statement.

Analysts say the worst is probably yet to come and that the conglomerate's continued distress can be expected to further undercut its entertainment operations.

"The incident highlights that LeEco's cash crunch is far worse than previously expected and is likely to further weigh on the business of its listed video-streaming unit," said China Daily, Beijing's flagship state-backed English newspaper.
 

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