China's Leshi warns of severe cash crunch, possible loss of key unit's control

[May 14, 2018]   By Sijia Jiang

HONG KONG (Reuters) - Embattled Chinese tech firm Leshi Internet and Technology warned on Monday its cash flow was "extremely tight" and that it could lose control of a key smart TV subsidiary if its biggest shareholder did not repay money owed to it.

Leshi, once the main listed entity of the LeEco conglomerate founded by Jia Yueting, was questioned by the Shenzhen Stock Exchange last week about its faltering business and financial performance that could trigger a share trading halt and a possible eventual delisting.

In an online Q&A with retail investors on Monday, Leshi confirmed that was a possible scenario and said that it was still seeking repayment of debt from Jia and related parties by all means, though no clear resolution is in sight.

Leshi had said in January Jia and LeEco owed it 7.5 billion yuan ($1.18 billion). LeEco has disputed the figure.

A video-streaming company that also makes internet-connected television sets, Leshi reported a net loss of 307 million yuan for January-March 2018 and a loss of 13.9 billion yuan for all of 2017.

Jia's LeEco conglomerate, once China's Netflix-to-Tesla contender that expanded rapidly, has been struggling with a financial crisis since late 2016. Jia, who has defied Chinese regulators' calls to return from the United States saying he is working on his electric vehicle start-up, ceded control of Leshi to new investor Sunac China last July.

 The logo of of Leshi Internet Information & Technology Corp is seen on its building in Beijing, China March 15, 2018. Picture taken March 15, 2018. REUTERS/Stringer

But Jia remains Leshi's largest shareholder, and Sunac has distanced itself from Leshi this year, with its chairman resigning as Leshi chairman.

Liu Shuqing, Leshi's new chairwoman, on Monday called on Jia and related parties to come up with a payment timetable to ease the listed company's difficult situation.

Company secretary Zhao Kai warned there is risk that Leshi could lose its controlling shareholder position in smart TV subsidiary Lerong Zhixin, which just received investment from companies including Tencent Holdings and JD.com Inc.

Leshi previously said that it had pledged its stake in the unit with banks, which could be frozen if it were unable to repay loans on time.

LeEco did not immediately respond to an emailed request for comment.

($1 = 6.3370 Chinese yuan renminbi)

(Reporting by Sijia Jiang; Editing by Muralikumar Anantharaman)

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