Jia Yueting, LeEco founder.
Cash-strapped Chinese internet company LeEco is facing another blow, with 1.24 billion yuan (3 million) in assets belonging to its founder Jia Yueting and three affiliated companies being frozen by a court.
The incident highlights that LeEco's cash crunch is far worse than previously expected and is likely to further weigh on the business of its listed video-streaming unit Leshi Internet Information and Technology Corp, analysts said on Tuesday.
Shanghai High People's Court made the ruling after a China Merchants Bank branch applied for a property preservation order in June to block the 1.24 billion yuan of assets owned by Jia, his wife and three affiliated companies.
The action came after LeEco failed to pay interest due on bank loans taken out to fund its smartphone business, China Merchants Bank said.
LeEco has been wrestling with a financial squeeze since last November, with Jia admitting publicly that its expansion into smartphone, automobile, cloud and internet finance business had been a step too far.
Shen Meng, director of boutique investment bank Chanson & Co, said the latest incident underlines that LeEco's cash flow problems are worsening, despite a 16.8 billion yuan investment from real estate developer Sunac China Holdings and other investors at the beginning of the year.
"The cash gap is far bigger than most people had expected," Shen said.
"Most of Sunac's money goes to LeEco's listed video-streaming and smart television businesses, which are considered by investors as its quality assets. But it turns out that even these businesses are now financially affected by LeEco's overexpansion into unlisted cash-burning units including automobile and smartphones," Shen said.
Meanwhile, Jia stepped down as the legal representative of Leshi Holding (Beijing) Co Ltd, the parent company of LeEco's sprawling business units, in June, data from National Enterprise Credit Information Publicity System show.
Jia was replaced in June by Wu Meng, who has been working at LeEco for a long time and held a number of senior positions, though Jia remains as the executive director.
LeEco said the reshuffle is meant to free Jia from the burden of daily tasks and allow him to focus more on core businesses including electric cars.
Lu Zhenwang, CEO of Shanghai-based Wanqing Consultancy, said Jia's influence is fading, as Sunac plans to separate LeEco's listed video-streaming unit from its money-losing automobile and smartphone businesses.
"But these units are in fact highly linked. The video-streaming business will be weighed down further, as now it is next to impossible for Jia to find investors to back his electric car plan," Lu said.
In May, Jia stepped down as chief executive of Shenzhen-listed Leshi Internet Information and Technology Corp, although he remains its chairman.