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Business trends

China's LeEco and HNA restructure assets to pay down debt

Shares of Shenzhen-listed LeEco fall sharply on first trading since April

Jia Yueting is placed on China's official blacklist of defaulters.   © Reuters

HONG KONG -- Chinese tycoon Jia Yueting is facing calls to repay shareholders of his cash-starved conglomerate LeEco with stakes in his car companies, as hopes of another white knight coming to his rescue fade.

Such concerns are shared by investors of airline group-turned-conglomerate HNA Group, after shares of three of its China-listed subsidiaries fell by their 10% limit on Monday. Six other listed subsidiaries have been suspended from trade.

LeEco and HNA are two of the most prominent Chinese conglomerates well known for active acquisitions outside of mainland China over the past few years. They have reportedly hit a snag recently, including fetters imposed by Beijing to expand abroad.

Sun Hongbin, chairman at Sunac China Holdings, came to LeEco's rescue last year, when he poured 15 billion yuan ($2.34 billion) into the group's subsidiaries, and later provided 1.8 billion yuan in fresh loans to the company's video streaming and TV unit. But all his efforts failed to turn around the troubled conglomerate and Sun has now said he was ready to let go.

"I will try my best. But if it does not work, so be it," Sun, who is now chairman at Leshi, told investors at a briefing on Tuesday. "People have many regrets in their life ... Sometimes, we need to admit defeat," said the outspoken tycoon. Sunac now is the second largest shareholder of the troubled company with an 8.56% stake.

Shares in Leshi Internet Information & Technology -- a listed unit of LeEco -- immediately dropped 10% to 13.80 yuan on Wednesday morning as it resumed trading on the Shenzhen Stock Exchange after a trading halt since last April. A fall of 10% is a daily price limit in the mainland stock exchanges. 

Sun admitted that he underestimated the seriousness of LeEco's financial troubles when he decided to step in. It emerged that more than 50 related companies controled by Jia owed 7.53 billion yuan to Leshi by the end of November.

"I was wrong about the related companies' ability to repay debts," he said, without naming Jia.

Leshi said it suffered serious reputational damage last year, which had resulted in a "substantial decline" in advertising and membership revenue. The TV manufacturer and video content producer expects its business to record a loss in 2017 and said it would run into "operational difficulties" if its debts were not repaid.

Jia last month was also placed on China's official blacklist of defaulters after a series of missed payments and lawsuits from creditors following its rapid expansion. As LeEco's cash crunch deepens, Jia's electric car business will not be spared.

Leshi said it was planning to settle its debts by seeking stakes in Jia's three car companies -- Faraday Future, Lucid and LeSEE. All of them manufacture electric cars that Jia had hoped would one day rival U.S. car maker Tesla. Last month, Jia claimed he had successfully raised $1 billion for Faraday Future, and would take over the role of CEO at the U.S. company.

Different paths

While Jia has defied Chinese authorities' order to return to the country and continues to pursue his electric car dream in the U.S., another troubled conglomerate is offloading some of its heavily funded overseas assets to repay debts.

On Monday, shares in Shanghai-listed HNA Infrastructure Co., Zhejiang Haiyue Co. and HNA Innovation Co. plunged by the maximum 10% permitted by local stock exchanges. The group subsequently applied to halt trading of HNA Infrastructure stock, the sixth suspended stock in its portfolio.

The sharp fall was partly triggered by an announcement on Friday that the group had hired bankers to look for buyers of its 29.5% stake in Spain's NH Hotel Group. The stakes were valued at about 632 million euros ($744 million), according to Reuters. Investors got even more concerned after Bloomberg reported that Group CEO and co-founder Adam Tan, abruptly canceled his trip to Davos this week to attend the annual World Economic Forum.

HNA Group CEO and co-founder Adam Tan, abruptly canceled his trip to Davos to attend the annual World Economic Forum.   © Reuters

PwC Greater China Private Equity Leader David Brown said that Beijing would continue to scrutinize overseas deals. "This practice of very aggressive acquisitions overseas financed by high degree of leverage coming out of China will be discouraged."

He said "problematic companies" such as like HNA Group and Dalian Wanda Group might have to sell some overseas assets to deleverage, while significantly reduce their foreign investments in the coming year.

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