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China's Leshi on verge of delisting as debts pile up

Startup's fall from grace fueled by overly aggressive expansion

Leshi Internet Information & Technology founder Jia Yueting, right, introduces an electric car. The company's expansion outside streaming services has led to a pile of debt it cannot repay.   © Reuters

DALIAN, China -- Chinese streaming service Leshi Internet Information & Technology's stock market listing has been suspended, the company said Monday, as debts mount from its aggressive diversification efforts.

The suspension was prompted by roughly 3 billion yuan ($439 million) in negative net assets booked for 2018. The company will be delisted from the Shenzhen Stock Exchange's ChiNext board for startups if it fails to regain positive net worth within the next year.

General Manager Wei Zhang said last weekend that there was still no way to resolve the debt issues. Leshi will continue to discuss a restructuring strategy with major investors, according to the company.

The Shenzhen bourse halted trading of Leshi shares from April 26, then had 15 trading days to decide whether to suspend the company's listing. Leshi was suspended on Friday.

Leshi booked a net loss of about 4.1 billion yuan in 2018, its second straight year of red ink, as the company suffered from a decrease in subscribers to its streaming site while concerns over management increased.

Leshi launched in 2004 and quickly grew into one of China's most well-known startups for its online streaming service, especially for its sports programming. The company then found success manufacturing smart televisions and smartphones.

But the company's troubles began in 2016, when embattled founder Jia Yueting began to expand into electric vehicles. The venture did not proceed according to plan, and Jia stepped down as chairman in 2017, taking responsibility for the failure.

Jia is still crucial to efforts to rebuild Leshi, being the company's largest shareholder with a roughly 24% stake. He is believed to have fled China and there have been rumors that he is seeking refuge in the U.S. after Chinese authorities launched an investigation into alleged information disclosure violations by Jia and Leshi. The whereabouts of Jia are unknown, a company spokesperson said.

Sunac China Holdings, the second largest shareholder, has dispatched personnel to help with the reorganization.

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