Beijing: Cash-strapped Chinese tech firm LeEco secured a $2.2 billion investment from a group led by property developer Sunac China Holdings, but shares in the rescuer plunged on Monday on news of the deal.
Hong Kong-listed Sunac said on Friday it would plough 15.04 billion yuan into the sprawling LeEco empire, which has interests in various sectors including self-driving cars, smartphones, film making, and TV-set manufacturing.
Its diverse ventures pit the company against Apple, Netflix, and Tesla and homegrown Chinese champions Baidu, Tencent, and Alibaba. But the company’s relentless expansion has put a strain on its cash flow, and in November billionaire founder Jia Yueting told employees the company grew too quickly and was short of funds.
Shares in its Shenzhen-listed LeShi affiliate dived more than 36% last year and in December were suspended from trading before restarting Monday. It ended down 1.12% at 35.40 yuan in Shenzhen.
The deal will make Sunac the second-largest shareholder of LeEco, with 8.61% equity in LeShi Internet, 15% in LeShi Pictures, and 33.5% in the TV unit Leshi Zhixin, Sunac said in an announcement to the Hong Kong stock exchange.
But shares in Sunac plunged as much as 10% in Hong Kong Monday before paring the losses to end 7.96% lower at HK$6.71.
At an event Sunday in Beijing, Jia was full of optimism, declaring that “though the road is bumpy, our dream is getting closer”. Jia and Sunac chairman Sun Hongbing were born in the same region of China, northern Shanxi province, and had a positive six-hour meeting last month, Sun said, adding that it gave him the “impetuous urge to invest”.
The deal takes Sunac far outside its primary business in buying and developing property. “Overseas investors see this as relatively negative to Sunac,” David Yang, of UOB Kayhian Investment told Bloomberg News. The deal “can hardly bring much profit contribution in the near term.”
Sunac last year struck the largest number of deals in China, being involved in 13 deals totaling $4.2 billion, according to Bloomberg News. “While we’re firmly optimistic about the real estate industry for the next five to 10 years, we’ve since long ago started an exploration journey to prepare for 10 years later,” Sun said.