Sunac shares tumble on plan to invest US$2.2b in LeEco
Developer's stock price dropped to as much as HK$6.56, the lowest since January 3, after announcing its first investment outside its core assets
Sunac China Holdings shares plunged as much as 10% on Monday, after the property developer announced plans to invest US$2.2 billion in cash-strapped Chinese technology conglomerate LeEco.
Sunac on Friday said it would invest 15.04 billion yuan (US$2.2 billion) in the TVs-to-electric cars group LeEco, in its first investment outside its core assets, but the move stoked worries about its liquidity given the amount was equivalent to more than half of Sunac’s market value.
Sunac President Wang Mengde, however, sought to allay worries in a news conference on Sunday, saying: “Our investment this time is equivalent to about one or two of our property project investments and it won’t affect our property expansions in future years.”
Shares in Sunac, worth around HK$28 billion, dropped to as much as HK$6.56, the lowest since January 3, and were down almost 8% at HK$6.72 by 0641 GMT. The benchmark Hang Seng Index was down only 1%.
Sunac, which has been seeking investment opportunities linked with China’s technological innovation, said it will finance some of the investment through loans.
For cash-strapped LeEco, which has rapidly expanded into electric and driverless vehicles, television and smartphones as well as film production, the latest round of funding will help ease its liquidity crunch.
Apart from Sunac, LeEco also attracted 1.8 billion yuan investment from Le Ran Investment and Hua Insurance.
From the new funds, LeEco’s listed unit Leshi Internet Information and its holding subsidiaries will receive 7.1 billion yuan, LeEco said.
But some observers remain lukewarm about LeEco’s prospects to resolve its cash problem in the longer-term, given the firm has not fully launched some product offerings yet, nor has it made large sums of money from its ever-expanding operations.
“The current capital infusion will not permanently solve LeEco’s problems,” said Neil Shah, research director of Counterpoint Research.
“Rather LeEco will need to prudently spend the investment to keep the ball rolling and focus on selling its offerings to build a tighter ecosystem of content, devices, and users to realise some return on investment,” Shah said.
At a press conference on Sunday in Beijing, LeEco founder and Chairman Jia Yueting said LeEco’s new investments will focus mainly on the company’s businesses outside of its car segment.
“About 10 billion yuan of funding will completely be invested in LeEco’s non-listed entities, including for globalisation, the smartphone business, as well as the many subsidiaries.”