Creditors circle LeEco after founder quits as company chair

The fall of cash-strapped technology group LeEco, which had once tried to take on Tesla in the American autonomous car market, has become a headache for creditors trying to recover cash.

LeEco's creditors were squatting on yoga mats at its headquarters in Beijing on Friday, the morning after the group's embattled founder and chair Jia Yueting resigned from the board.

Twelve creditors and contractors had just emerged from a meeting inside the headquarters, but were unsatisfied and waiting for more.

LeEco's listed arm, Leshi Internet and Information Technology, has Rmb1.98bn ($290m) of liabilities due within a year as of the end of March.

"Leshi Internet still owes me Rmb60m," said a 40-year-old man, who added that his firm had supplied mobile handsets for the company. "I don't have money to hire a lawyer."

Earlier this week, China Merchants Bank won a court order to freeze Rmb1.24bn belonging to LeEco, Mr Jia and his wife. LeEco had missed interest payments on a loan from the bank.

"I will persist in my duties until the end for the sake of our employees, users, customers and investors," Mr Jia had written on social media on Thursday.

Half a year ago, LeEco's billionaire founder had been boasting of taking on Tesla at the unveiling of the FF91, a prototype electric car produced by Faraday Futures, a company substantially backed by LeEco.

"Their business strategy was 'spray money and pray'," said William Bao Bean, partner at venture capital fund SOSV. "I think at this point they're in the praying mode."

Property developer Sunac stands to lose the most: it had given LeEco a lifeline by investing $2.4bn in January. In return, Sunac received stakes in LeEco's core businesses.

LeEco shareholders nominated Sunac chairman Sun Hongbin to replace Mr Jia as chair on Thursday.

Sunac has taken a leadership role in the group as its major strategic investor. 

The Tianjin-based property developer's stakes in LeEco's television streaming and film subsidiaries now overtake Jia's own stakes in size, according to company filings.

Sunac's share price has suffered since it announced its white-knight deal with LeEco in January, when it promised to invest $2.4bn in the group. Sunac's Hong Kong-traded stocks fell 14 per cent this week, wiping out more than $1.2bn of equity value.

"Sunac has increased its business risk because it has no experience in Leshi's businesses, which are developing," wrote Franco Leung, a vice-president at Moody's, in a note.

Sunac and Mr Jia were not available for comment.

Outside LeEco's Beijing offices, the bodyguards no longer reacted as non-authorised visitors entered the building.

One newly hired guard said that 10 people, likely ex-contractors, had come to wait in the lobby Thursday.

"They arrive earlier than me, and they leave later than me," said the guard.

Waiting outside the HQ were two buses sent by the white-collar recruitment agency Zhilian Zhaopin, and a young recruiter, Ms An.

"Not too many LeEco staff are coming to us," Ms An sighed. "Most of them have already found their next jobs by now."

Additional reporting by Sherry Fei Ju in Beijing

Copyright The Financial Times Limited 2017