/Cash-strapped LeEco lands USD 2.4 B investment and obtains its second largest shareholder

Cash-strapped LeEco lands USD 2.4 B investment and obtains its second largest shareholder

Heather Wang in Beijing

Chinese tech giant LeEco announced a partnership with its strategic investor Sunac China on Sunday. Sunac was the major contributor of a RMB 16.8 billion (USD 2.4 billion) investment in LeEco, two months after the company confirmed its “great capital challenge”.

“This is the first time LeEco has truly gained a strategic investor. It will be a turning point for LeEco,” said Jia Yueting, founder and Chairman of LeEco, at a press conference in Beijing on Sunday afternoon.

“This strategic investment is crucial for LeEco’ s development. It will help LeEco’s ecosystem to fully grow and reach its next goal. Whether it is from the market value or revenue, LeEco aims to become one of the first Chinese companies to gain a trillion dollars.”

Sunac China, a real estate developer headquartered in Tianjin, invested RMB 15 billion and acquired LeEco stake owned by Jia. The remaining RMB 1.8 billion of the investment was made by Le Ran Investment and Hua Insurance.

“Our investment will solve all of LeEco’s financial problems except its car businesses. This investment has completely solved it all,” said Sun Hongbin, the Founder of Sunac China at the conference.

“Jia’s strategy and logic is very clear. I agree with his tactics. More importantly, I can sense his entrepreneurial spirit. This is rare in these times.”

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YT Jia (left) and Sun Hongbin. Photo from LeEco

This is the first time that Sunac China, which is among the country’s top ten real estate companies, invests in a non real estate arena.

Among LeEco’s wide variety of businesses, Sunac China, now LeEco’s second largest shareholder after Jia, made the investment on the company’s three subsidiaries: Leshi Internet Information & Technology (Leshi), LeEco’s listed company branch; Le Vision Pictures, LeEco’s film production arm; and Leshi Zhixin Electronic Technology, LeEco’s television subsidiary. Sunac allocated RMB 6.04 billion, RMB 1.05 billion, and RMB 7.95 billion in the three aforementioned divisions respectively.

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Rumors of LeEco’s financial crisis erupted in early November last year after LeEco was confronted with a capital chain rupture, and when Jia Yueting sent a letter to LeEco employees admitting the tech giant’s “extremely fast expansion”.

LeEco’s listed company Leshi requested a trading suspension on December 7, 2016, after its stock price plunged 19 percent since November 1, and more than RMB 10.8 billion of its market value evaporated. Rumor of its diving price might be the result of Jia losing control of the company.

LeEco is set to resume Leshi’s trading this coming Monday, according to a statement by LeEco.

LeEco’s financial pressure mainly comes from three of its business divisions: electric car business, investment in local car-hailing app Yidao, and smartphones which the company offers subsidies to buyers, according to Tencent Finance’s interview with Jia. He said he will solve LeEco’s financial issues in the next three to four months.

Also read: What led tech giant LeEco into troubled waters

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It is expected that Sunac’s generous investment will restore investors’ confidence in LeEco and boost Leshi’s stock price.

However, the real estate company did not invest in LeEco’s cash burning electric car business or Faraday Future, which recently implemented cost cutting measures and appeared to have stopped work on its USD 1 billion Nevada factory.

Wang is a contributor at ACT. She is passionate about literature, photography and technology. She graduated from Shanghai University of International Business and Economics.