Pressure piles on China’s LeEco as bank seeks to have assets frozen

July 4, 2017

By Jess Macy Yu and Shu Zhang

TAIPEI/BEIJING (Reuters) – Chinese tech group LeEco, which has interests ranging from smart cars to online content, is facing growing pressure from its creditors and business partners, with one bank wanting some of its assets frozen by a Shanghai court over late payments.

The latest financial woes have surfaced days after its founder and CEO Jia Yueting said the conglomerate’s cash problems were “far worse than expected” and that billions of dollars in funds raised in recent months were not enough to help it ride out the crunch.

China Merchants Bank Co Ltd said in a statement on Tuesday it had applied to have some of LeEco’s assets frozen because a subsidiary, Leview Mobile HK Limited, had been late on making interest payments on a loan.

“CMB’s Shanghai branch repeatedly urged repayment without success and so sought to use legal means,” the bank said, adding it now had risks related to the loan under control and did not rule out using “friendly talks” to resolve the issue.

LeEco, which controls smartphone maker Coolpad and its core listed smart TV unit Leshi Internet Information and Technology Corp, has been battling huge financial pressure since Jia admitted last year the company had expanded too fast and was facing “big company disease”.

Several local media outlets this week reported CMB’s Shanghai branch had successfully applied for an asset freeze against some of LeEco’s subsidiaries, Jia and his wife, totaling 1.237 billion yuan ($182 million).

Reuters could not immediately confirm if the Shanghai court had approved the asset freeze.

CMB did not comment further on the details.

A LeEco spokesman said CMB’s asset-freeze application concerned “financing loans related to LeEco’s smartphone business”, but added LeEco had enough collateral to cover the loan.

“Our senior executives are currently in close communication with various financing units of CMB, and we hope to resolve the related debt issue very soon,” he added. LeEco also hopes to raise further cash to help the firm “get back to normal”, the spokesman said.

In 2015, CMB agreed on a 10 billion yuan loan to LeEco, part of which was used to acquire a stake in Coolpad and was the biggest bank loan to LeEco at the time, financial magazine Caixin said on Monday, citing public information.

Some other partners and suppliers are re-examining their exposure to the troubled group.

This week, local media reported an affiliated company of electronics manufacturing giant Foxconn divested its 20 percent stake in LeEco’s TV and video unit Leshi Zhixin, a blow to the company’s core business and one of its most profitable units. Foxconn did not reply to Reuters’ request for comment.

LeEco is also facing pressure from China Mobile over late payments of around 14 million yuan, a person with knowledge of the matter said. The carrier declined to comment.

In June, Taiwan’s Compal Electronics Inc reduced shipments to LeEco, and temporarily suspended its plans to buy shares of Leshi Zhixin, according to local media. At Compal’s first quarter investor conference, it said it was monitoring Leshi’s repayment abilities and would develop a new strategy to collect its debt, which could involve legal action.

Compal did not provide immediate comment when contacted by Reuters. LeEco did not reply to Reuters’ requests for comments on its business partners’ actions.

Faced with the worsening cash crunch, LeEco has put some of its global properties for sale, cut staff numbers, and is planning a restructuring to fold some business units into Leshi Internet.

(Reporting by Jess Macy Yu in TAIPEI and Shu Zhang in BEIJING; Additional reporting by Sijia Jiang in HONG KONG; Editing by Adam Jourdan and Muralikumar Anantharaman)

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