For all the buzz surrounding the rise of the Chinese tech company LeEco, very little has been said about how the company and its intrepid leader, Jia Yueting, are financing their ambitious endeavors.
LeEco is developing several different businesses at once — including smartphones, internet TVs, streaming content, and, more recently, electric cars.
Last month, Business Insider was on-site for the grand opening of LeEco's first US headquarters, in San Jose, California. Nearly 300 employees work in that office, which has space for up to 800.
The company has thousands of employees worldwide.
Just a couple of hours after the ribbon-cutting, the company was reported to be in talks to buy some 3 million square feet of land from Yahoo.
Jia, the CEO, is also one of the investors backing Faraday Future, the California-based electric-car startup that is planning a $1 billion, 900-acre factory in the North Las Vegas desert.
One of the many questions about LeEco, its parent company, Leshi Internet Information and Technology, and Jia is this: How is the company financing its rapid growth?
LeEco went public in China under the Leshi name in 2010, but it flew under the radar until the stock popped early last year, The Wall Street Journal reports, making it "one of the most valuable tech stocks listed in China."
To finance rapid growth among the many businesses under the Leshi banner, Jia apparently pledged a large portion of his shares in Leshi as collateral for personal lines of credit, according to Journal writer Li Yuan.
(Screenshot Via YouTube)
Here's more from The Journal:
Mr. Jia then lent the money to his new ventures, such as the smartphone and car businesses, the company says. The company declines to disclose the amount of funding Mr. Jia has raised in this manner, but it is believed to be in the billions of yuan ... LeEco says on average, that Mr. Jia pledges around 70% of his holdings in Leshi as collateral for loans.
Trading in Leshi shares has been suspended since December. The suspension was prompted by Leshi so the company could acquire an ownership stake in its film business, Le Vision Pictures — ostensibly to help grow its content-streaming services.
Leshi plans to issue 165 million shares of Leshi at 41.37 yuan, or about $6.35, a share to shareholders of Le Vision Pictures plus a cash payment of 2.98 billion yuan to finance the deal, the South China Morning Post reported Monday.
(Bryan Logan/Business Insider)
That's a nearly 30% discount from Leshi's December closing price of about 58.8 yuan, or $9.02, a share.
Business Insider obtained a statement from Leshi in March announcing that the trade suspension would end May 7, but now it's unclear when that will happen, according to SCMP, which cited a company filing released Friday.
Since December, Leshi has proposed several deadlines for when trading of the stock it has been using as collateral will resume — all of which have been missed.
According to financial documents from Leshi that were cited by The Journal, the company was valued at about $16 billion at its December closing price.
The company is doubling down on its film business because content streaming is a huge part of its broader strategy. Jia told Reuters last month that sales of the company's movies and TV shows would subsidize the cost of its future electric, autonomous cars, like the concept LeSEE.
"One day, our cars will be free," Jia said.
Because LeEco is a strategic partner of Faraday Future — Jia said he is among the investors backing the company — the now five-month suspension has caught the attention of Nevada's state treasurer, Dan Schwartz, who is responsible for overseeing millions of dollars in tax incentives that are helping Faraday Future build its factory.
Schwartz has repeatedly raised concerns about Jia's association with Faraday Future. Earlier this year, Schwartz traveled to China on unrelated business and attempted to meet with executives at Jia's company, to no avail.
A Faraday Future representative reiterated to Business Insider on Monday that Leshi and LeEco's business was separate from that of Faraday Future, because Jia was backing Faraday Future with personal assets. The representative declined to comment on who besides Jia was funding the company but said "our business continues to grow steadily."
(Bryan Logan/Business Insider)
Schwartz says he's not entirely convinced. "We are aware that there are multiple issues ... which bear on the start date of the project," Schwartz told Business Insider in a phone conversation last month. He declined to elaborate on what those issues might be.
Chinese tech companies at large have been making big bets on electric cars lately. The Chinese government in recent years has loosened the rules, allowing the practice. The apparent goal is to hasten the move away from the fossil fuels that have contributed to China's massive pollution problem.
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