Sunac China Buys Control of Failing Le Eco Units After Losing $2.6B

China’s fourth largest real estate developer Sunac China Holdings has taken control of two of the three units of Jia Yueting’s financial-troubled LeEco company via court auction, at a price of RMB 773 million. The investment comes after the developer already lost RMB 16.6 billion ($2.64 billion) on the debt-ridden media business in the past year.

With the additional shares the Tianjin-based real estate developer acquired on Monday, it gains a 46 percent controlling stake in LeEco’s television set maker Lerong Zhixin Electronic Technology Tianjin, and also took control of LeEco’s film production unit, Le Vision Pictures, with a 42.8 percent equity interest.

The latest acquisition follows less than one month after Sunac China’s chairman, Sun Hongbin vowed at an earnings conference in Hong Kong that the developer would focus on its core real estate business and stop non-property related diversification plans. Sun’s pledge came after the company had poured a total of RMB 15 billion ($2.2 billion) into the crumbling LeEco since the beginning of 2017, and had to write off 90 percent of that investment as a loss.

Buying Shares in LeEco

According to Leshi’s statement published on Monday, Sunac China bought 15.33 percent of Lerong Zhixin Electronics as well as 21.81 percent of film producer Le Vision Pictures. The share purchases boosted the developer’s stake in the LeEco units to 46 percent and 42.8 percent respectively. Leshi Group, now the second largest shareholder of Lerong Zhixin, holds 36.4 percent stakes in the pair of tech ventures after the transaction.

As the sole bidder for the shares, the Tianjin-based developer picked up the shares for a total of RMB 773 million, with Lerong Zhixin equity selling for the auction reserve price of RMB 240 million and the filmmaker stake changing hands for about RMB 535 million.

At the current transaction price of 170.7 million Lerong Zhixin shares for RMB 240 million, Sunac is paying just over RMB 1.4 per share — highlighting that it has lost 94 percent of its investment into the Beijing-based trainwreck after it had spent RMB 7.95 billion buying Lerong Zhixin shares at RMB 35.39 per share in January 2017.

Sun Hongbin Said Regret in Buying LeEco

Sun Hongbin, the CEO of Sunac China, who resigned as chairman of Leshi Internet Information & Technology in March after his developer had already invested RMB 15 billion into the troubled media empire, said at the end of August that his real estate developer will no longer invest in non-property deals, but Monday’s transaction showed that promise to be short-lived.

“We may look at consumption upgrade-related opportunities in the future, but for now we have stopped investing,” said Sun Hongbin in an earning conference in Hong Kong.

Tan Haojun, a mainland-based financial analyst said that Sun Hongbin jumped into LeEco’s cash inferno again since he had already invested billions of dollars into it and he doesn’t mind losing a few million more to win control of the companies.

“The success of LeEco has great impact on the market images of Sun Hongbin and Sunac. If he could save LeEco, the public will consider this is a successful turnaround for the real estate developer,” said Tan in his blog.

Setting Aside RMB 16.6 Billion for Losses

Sun’s March resignation from LeEco’s video streaming subsidiary came after Sunac and Leshi failed to reach agreement on transferring rights to shares in the company. Sunac then admitted to its investors that its investment in Leshi was a failure and said that it represented its biggest loss since listing in Hong Kong in 2010.

“I’ve never had any regrets my entire life, until I invested in LeEco,” Sun said during a Hong Kong press conference last September with tears in his eyes, as cited by the South China Morning Post. “If I can’t turn LeEco back to normal, that would be a regret.”

According to Sunac’s 2017 annual report, it has set aside RMB 16.6 billion to cover its LeEco losses, including RMB 9.98 billion to write down debt, RMB 2.1 billion for impaired loans and 4.48 billion for investment losses.

On January 2017, Sunac acquired an 8.61 percent equity interest in Leshi Internet for RMB 6 billion, 15 percent of Leshi Pictures for RMB 1 billion and 33.5 percent of Leshi Zhixin for RMB 7.95 billion.