True to its online, e-commerce, new economy roots, cash-strapped Chinese tech company LeEco has put a 50,000 square metre (538,000 square foot) Beijing shopping center up for auction on China’s flagship e-commerce platform Taobao as it continues to scramble for cash.
The defaulting one-time flagship vehicle of tech entrepreneur Jia Yueting has listed the Beijing Shimao Gongsan Plaza in the capital’s Sanlitun area on Taobao for an auction reserve price of RMB 2.3 billion ($334 million).
The auction has been arranged with the help of the city’s courts after Le Eco had been sued by China CITIC Bank for failure to make payment on a RMB 2 billion mortgage on the commercial asset. Distressed real estate listings on Alibaba’s Taobao auction site rose 88 percent in October from a year earlier thanks to China being the world’s largest bad-debt market.
Beijing Courts Back Ecommerce Auction
LeEco’s auction, overseen by the Third Intermediate People’s Court of Beijing and open to the public on Taobao’s distressed asset channel of the ubiquitous online marketplace, will begin on January 7, 2019 at 10 am and end 24 hours later. The target asset, Beijing Fortune Times Real Estate Co. Ltd (北京财富时代置业有限公司), has a valuation of RMB 3.29 billion with the bidding price starting from RMB 2.3 billion.
Wholly owned by LeEco, Beijing Fortune Times is the holding vehicle for Beijing Shimao Gongsan Plaza, which the tech firm originally acquired from developer Shimao Group in May 2016 for RMB 2.97 billion. By November that year, LeEco was reported to have already pledged shares in the two companies holding the property to CITIC Bank in return for the loan.
Thanks to sales skills that appear to have outpaced his financial acumen, and with the help of generous banks, Jia Yueting had grown Le Eco from its roots in Internet TV into an empire that spanned self-driving electric cars, smart phones and commercial real estate. But, the dream company started to run short of money in late 2016 as Jia admitted internally that LeEco overextended its finances by expanding too quickly.
Online Sale Follows Offline Failure
In June of last year Le Eco promoted reports that it was preparing to sell Beijing Shimao Gongsan Plaza to top three mainland developer China Vanke for RMB 4 billion, and would soon pay off the RMB 2 billion owed to CITIC Bank. However, the deal ultimately went unconsummated due “unmatched expectations” regarding price among the two parties, local media reported at the time.
A public record dated 7 August 2018 on China Judgement Online shows that LeEco and CITIC Bank had been engaging in ongoing litigation over a contested debt of more than RMB 1.6 billion.
In September, Le Eco sold 15.33 percent of its Internet TV firm, Lerong Zhixin Electronics, to Sunac China Holdings via court auction, as well as selling 21.81 percent of film production unit Le Vision Pictures to China’s fourth largest real estate developer for RMB 773 million.
The deal came 18 months after Sunac agreed to pay the equivalent of $2.2 billion to buy minority stakes in LeEco’s Leshi Internet Information and Technology Corp, its Leshi Pictures film production unit and a 33.5 percent stake in Leshi Zhixin.
Taobao Property Sales Take Off
Alibaba, which started its asset auction site about six years ago, facilitated around RMB 500 billion of distressed real estate auctions last year, including family homes and industrial warehouses. The amount accounted for more than half of China’s total disposals of distress property, according to a report this week by Bloomberg.
Heated bidding can see prices pushed up to premius of as much as 90 percent of the auction minimums, although only about 40 percent of listings actually sell, added the news agency.
Still, the opportunities are expected to keep coming, with bad loans tied to property increasing. Real estate underpins China’s $1.4 trillion nonperforming loan market, accounting for as much as 80 percent of debt in portfolio sold, PricewaterhouseCoopers LLP said in a report last month.