The 45-year-old chairman of LeEco has one of China’s most popular online video sites for entertainment and sports, which is an alternative to local TV channels. As often, he wore the blue jeans, gray sneakers and black T-shirt that evoke Apple founder Steve Jobs. But ironically, Jia published a controversial letter on his Weibo (Chinese Twitter), arguing that the dominance of Apple’s iOS operating system was stiﬂing innovation.
He emulates Steve Jobs’ fashion sense but loves to brag that his company has already surpassed Apple in areas including design, craftsmanship, hardware and business models.
Jia does not have a smooth path in building up his multi-business empires, just like Steve Jobs, controversy has been one of the best-recognized labels of him and his ambitious LeEco. Now, despite of the mounting debts, he is on the way of another epic return.
Saving the ‘Private Jia’
A unit of Evergrande Group has injected capital into the struggling electric car manufacturer Faraday Future, effectively taking control of the company previously owned by the controversial entrepreneur Jia Yueting.
Xu Jiayin, the second richest man in China, has decided to be the white knight for rescuing Jia. His Evergrande Health Industry Group, the Hong Kong-listed unit of Evergrande Group, has agreed to acquire Season Smart for HK$6.7 billion (US$853.85 million), the company said in a ﬁ ling to the Hong Kong stock exchange on Monday afternoon.
Last year Season Smart took a 45 per cent stake in a joint venture with struggling electric car maker Faraday Future following a US$2 billion capital injection.
According to the ﬁ ling, Evergrande will replace Season Smart to become the biggest shareholder of Faraday Future, with a 45 per cent stake. The original shareholders of Faraday Future will keep a 33 per cent while 22 per cent of equity will be reserved for employees.
Faraday Future was founded by Jia Yueting in 2014 in Los Angeles to build electric cars that could challenge Tesla. Jia remains among the original shareholders.
But Faraday Future’s operations in Nevada were shut late last year as Jia struggled to keep aﬂ oat his cash-strapped business empire LeEco.
Faraday Future’s ofﬁ cial Weibo account then posted a statement, saying it welcomed Evergrande as a “new strategic investor”, while also stating that Jia will take the role of Faraday Future’s global CEO.
“Through acquiring world-leading new energy automotive technology and products …
[Evergrande] has the opportunity to obtain a strong competitiveness in the fast-growing new energy automotive industry, capture market share and diversify its businesses,” the Evergrande ﬁling said.
Season Smart has invested US$800 million into the joint venture with Faraday Future, according to the ﬁ ling. Evergrande will invest a further US$600 million before the end of 2019, and another US$600 million before the end of 2020, according to the ﬁling.
Smart Mobility Auto, a company under Faraday Future, earlier in April won a bid for a land plot covering 98.8 acres in the Nashan District of Guangzhou. Evergrande is not the first White Knight for Jia, not even the second. Along the way of LeEco’s cash flow struggles, the disputed entrepreneur showcased his well-maintained network in China’s business circle and survived every time against several fetal crashes.
The Defeated ‘White Knight’
Sun Hongbin, the white knight who came to the rescue of troubled entrepreneur Jia Yueting – also known as ‘China’s Steve Jobs’ – with a 15 billion-yuan (US$2.3 billion) investment in Leshi, was once refused to make further financial commitments.
“People should admit defeat because sometimes it works, sometimes it doesn’t,” Sun, the Chinese property tycoon behind Sunac China Holdings, told retail investors of Leshi Internet Information & Technology on Tuesday morning via an online conference link through the Shenzhen bourse.
Sun said that while he was not willing to increase his stake in Leshi, he would try his best to push for a “solution to the capital problem and normalise operations”.
Sun poured 15 billion yuan to buy an 8.56 per cent stake in Leshi and other LeEco subsidiaries in January and provided it with another 1.29 billion yuan in loans in November.
The reluctance of the property magnate – Sun’s business is among China’s most highly geared private companies – to pour more funds into LeEco and Leshi would choke off the lifeblood that’s keeping the beleaguered group alive.
“Anything could happen, including delisting of the firm,” Leshi said in a statement. Leshi’s shares have been suspended from trading since April last year after the company’s cash crisis became apparent.
Meanwhile, Sunac China rose by 5 per cent in Hong Kong to HK$36.3 within minutes of Sun expressing his desire to provide no further investment.
Jia resigned as chairman of Leshi to hand over the position to Sun but remains a controlling shareholder with a 25.67 per cent stake. More than 99 per cent of Jia’s holdings had been pledged to financial institutions for capital, according the firm’s financial report for the third quarter.
Leshi is also owed 7.5 billion yuan by companies related to the LeEco Group.
“The unpaid receivables, and troubles of the related parties under LeEco Group has weighed on the cash flow and the reputation of the listed company, causing losses of 1.6 billion yuan for shareholders in the first nine months,” the financial report said.
During a conference, Sun said he “was aware of the receivables owed by unlisted parties of LeEco but had wrongly assumed that they would be paid”.
Sun and his colleagues said they would urge Jia to make those repayments through the disposal of stakes in his other companies, including the Las Vegas-based Faraday Futures, which is involved in the development of an electric sports car.
Meanwhile, mutual fund managers had slashed their price for Leshi’s shares to 3.91 yuan, from 15.33 yuan before trading was halted, as the firm had aborted a restructuring plan, and is still showing no sign of recovering its debts, resuming normal operations or regaining market share.
Central Huijin Asset Management, a subsidiary of China’s main sovereign wealth fund, could feel the brunt of the stock’s decline as it is the sixth-largest shareholder with a 1.4 per cent stake.
Two asset management plans set up by the state-owned Industrial Bank, Agriculture Bank of China and China Post Fund are also among the top 10 shareholders.
Jia missed an end of year deadline issued by securities regulators to return to China to address his debts. Jia said he would stay in the US to focus on the electric car business, overseeing production of the FF 91, a luxury electric vehicle being developed by Faraday Future.
Back in China, his flagship, Shenzhen-listed Leshi Internet Information & Technology Corp is facing a delisting warning from the regulator, as it has defaulted on debt worth billions of yuan, while its net assets have plunged by 98 per cent in the past year.
The company reported a net loss of 307 million yuan (US$46.9 million) for the ﬁ rst three months in 2018 and a loss of 13.9 billion yuan for 2017.
66.2% Surge After the Purchase
Shares in Evergrande Health Industry Group, a Hong Kong listed entity under China Evergrande Group, one of the country’s biggest property developers, closed at HK$7.66 on Tuesday, pushing its market cap to an all time high of HK$66.2 billion.
The company, which has businesses in health care-related property development and medical services, surged by 66.2 per cent in Hong Kong, after it announced a HK$6.7 billion (US$854.85 million) capital injection to rescue troubled electric car maker Faraday Future (FF).
The company said in a stock ﬁ ling after close of trade on Monday it had agreed to fully acquire Season Smart, which controls a 45 per cent stake in a joint venture it set up with FF last year, making Evergrande Health the electric car maker’s biggest shareholder.
Some analysts said the price surge was speculative and would not last long. “I think it’s just market speculation and excitement – ﬁ nding something to buy when most stocks are not doing well. I think it’s a typical event-driven one or two-day shoot up pattern. Don’t think it can last and will fall back,” said Kevin Leung, Executive Director of investment strategy at Haitong International Securities.
“It is too early to tell how fundamentals of Evergrande Health will change because of this. And FF has always been a drag on all parties that have previously been involved,” he added.
FF’s founder, troubled Chinese entrepreneur Jia Yueting, and other original shareholders, will retain a 33 per cent stake, while the remaining 22 per cent will be held by employees.
As mentioned above, he missed an end-of-year deadline issued by securities regulators to return to China to address his debts. But he explained in an open letter that the key to addressing all problems was the volume of production and delivery of the FF91, a luxury EV developed by the car maker.
Chinese media National Business Daily on Monday quoted a spokesman from FF as saying that Jia had managed to keep control of FF, as the company had a dual-class shareholding structure. “Although Jia owns only a 33 per cent stake in FF, each share has 10 times the voting power of ordinary shares that Evergrande holds,” the spokesman was quoted as saying.
An Evergrande Health spokesman told a HK-based Chinese media—- the South China Morning Post, said it did not make sense to deﬁ ne Jia or anybody else as being in full control of FF.
According to a ﬁ ling on Monday, Evergrande Health will appoint two directors to the board of the joint venture with FF.
One of them, Xia Haijun, will be nominated as chairman of the joint venture. Xia currently serves as vice-chairman, president and executive director of China Evergrande. In an announcement posted on FF’s ofﬁ cial Weibo on Monday, the company said Jia will be its chief executive.
Although LeEco’s struggle is not yet ceased by the ﬁ lling, Jia has been a warrior who probably survived more crises than his role model Steve Jobs. It is too early to judge if he would be great among the greats, the epic return of Jia not only tells a business story but speak for the importance to have great connection in business.
(The content is edited from South China Morning Post, Bloomberg, Reuters, Forbes)