Troubles Mount for China’s LeEco as Streaming Unit’s Shares Crash

LeEco CEO Jia Yueting - Getty H 2016
Courtesy of Getty Images

Leshi, the troubled Chinese tech giant's streaming arm, saw its stock fall by the daily maximum of 10 percent on the Shenzhen exchange Wednesday.

Shares of Leshi Internet Information and Technology, the streaming video unit of beleaguered Chinese tech giant LeEco, promptly crashed on Wednesday as the stock resumed trading on the Shenzhen exchange after a nine-month suspension.

Shares fell by the daily maximum of 10 percent to 13.8 yuan before trading was halted until Thursday.

Leshi requested a trading suspension last April as it sought to acquire LeEco's more financially healthy film subsidiary, Le Vision Pictures, for 9.8 billion yuan ($1.53 billion). That plan was abandoned last week, after the board failed to find a means of executing the transaction amid Leshi's crushing debt load and outstanding financial liabilities.

As the deal was scrapped, Leshi said it would seek equity stakes in the Faraday Future, the U.S. electric car business bankrolled by LeEco's founder Jia Yueting, who owes Leshi an estimated 7.5 billion yuan. After getting ousted as chairman of Leshi last year, Jia absconded to the U.S., promising a turnaround of Faraday that would allow him to right his various companies' finances.

In late December, China's stock market regulator ordered Jia to return to China to deal with the debt crisis at Leshi — a directive the former billionaire defied, sending his brother and wife to Beijing in his place.

Several funds holding shares in Leshi have reduced the value of the company shares to as little as less than 4 yuan per share, which is about 70 percent less than the closing price on April 14, 2017, when Leshi requested the suspension so that it could pursue reorganization.

Zhang Shihang, a manager at Shenzhen's Timesbole Fund, which has slashed its valuation to 3.91 per share, said Leshi is deeply in debt and facing serious financial difficulties.

"Small investors are not recommended to buy even if the price falls very low," he added.

Founded by Jia as LeTV in 2004, Leshi became an early leader in China's internet video space, and was alternately referred to as the YouTube or Netflix of China for a time. But not long after the firm went public in 2010, Jia pursued a wildly ambitious plan for LeEco to become a world-leading maker of both original content and devices, producing everything from smartphones to smart TVs, electric bikes and high-concept electric cars. In the process, he burned though billions — the vast majority of it borrowed — until regulators began to tighten the leash in early 2017, triggering a string of defaults.