More Fallout From 2015 A-Share Bubble

Caixin: Fugitive Tycoon Jia Yueting and Leshi Under Probe

Leshi faces the risk of delisting after it posted negative net assets of 3 billion yuan at the end of 2018. The company’s shares have been suspended since Friday awaiting the regulator’s further decisions.

Jia, who has remained outside China since the summer of 2017, holds a 24.43% stake in Leshi, most of which have been frozen or pledged as collateral, Leshi’s annual report showed. He left behind massive debts, which reached 11.9 billion yuan at the end of 2018.

2018: Leshi Fails to Repay Debt on Time

2015: The Crash Isn't Only About Leverage, Insider Selling and Hot Money Also Exit

Insiders are also selling. At the end of 2014, insiders at 552 companies had 220 billion yuan in holdings, but this number was only 118 billion yuan as of June 26. The most famous example is LeTV.

Reuters: China company insiders skim the cream off frothy stock market

In May company insiders - senior executives or their relatives - sold a combined 1.68 billion shares, a tripling from April, and much more than in each of the previous months of this year, according to data compiled by Reuters.

Share sales by senior managers are sometimes taken as a worrying sign by investors, as they can indicate people who know a company best think its stock price is too high.

...Between June 1 and June 3, Jia Yueting, Chairman and president of Leshi (300104.SZ), sold 35 million shares in the internet firm he founded, making 2.5 billion yuan ($402.85 million).

Leshi said on May 25 that Jia plans in total to sell up to 148 million shares over the next six months or 8 percent of the company, though he will remain the biggest shareholder after that with a 36.85 percent holding.

Leshi went from around 8 yuan per share to near 40 yuan, a gain of 500 percent during the 2015 bubble. It's last trade was at 1.69 yuan.

Leshi Fails to Repay Debt on Time

JRJ: 乐视网：“15乐视01”未按期兑付本息 构成违约

　LeEco ( 300104 , attending shares ) evening announcement said 15 TV Plus 01 corresponds to August 3, 2018 payment of principal and interest, by the company, the capital chain tension influence, failed to timely payment of principal and interest debt. The voucher is a 3-year private debt issued by LeTV. The issuance scale is 1 billion. With the second year end, the coupon rate is raised and the investor's option to sell back. The current balance is 73 million yuan. The ticket price fell nearly 30 yuan a day before the delisting, the valuation of financial debt which has been the center of the bond market field implied rating - bonds adjusted debt rating from BBB to CCC. LeTV.com has broken the capital chain due to the expansion of the company. There are billions of debts to be repaid. The annual loss in 2017 was 13.88 billion, and the loss in the first half of 2018 was nearly 1.1 billion. At present, the market value of LeTV's stock has fallen below 10 billion yuan.

Leshi was worth more than 150 billion yuan at its peak in 2015. Chinese analysts thought it could hit 270 billion a year later.

Tech Node: LeTV might be delisted from the Shenzhen Stock Exchange

On July 13, Leshi (乐视网) released a financial forecast for the first half (H1) of 2018 reporting net profit losses for shareholders between RMB 1.10 and 1.11 billion. In the same period last year, the company reported net losses of RMB 637 million.

The company released a statement the same day saying that if its net assets will be negative for the year of 2018, it will be at risk of being suspended from its listing. According to Shenzhen Stock Exchange regulations, if financial reports show that the net assets are negative at the end of the year, the exchange may decide to suspend the listing of the stock.

The news comes just days after the Shenzhen Stock Exchange questioned Leshi regarding the new blockchain business of its smart TV subsidiary Lerong Zhixin. The company found itself under the suspicion of using blockchain buzzwords to hype up its stock price.

Leshi’s long string of financial woes began in 2016 but the real troubles emerged in June 2017 when Chinese courts started freezing the assets of Jia Yueting, the founder and former CEO of what was then called LeEco. In September 2017, the company rebranded in an attempt to distance itself from its founder. Three months later, Jia was added to a government blacklist for credit defaulters. He was called back to China in February 2018 to sort out the company’s mounting debt. The newest on Jia is that he was banned from air and rail travel in China.

In April, Leshi received a much-needed capital infusion when Tencent, Suning, and JD.com invested RMB 3 billion ($478 million) in Leshi Zhixin. The affiliate owns LeTV Super TV, which is considered the highest quality asset within the group.

Hazards of Investing in Chinese Stocks

LeTV is a popular company that in any other country would be a great investment. In China, the company lacks the proper licenses to expand and the government could shut them down tomorrow, or more likely make it harder to compete against state-owned media. How do you price that risk into shares?

Caixin: Despite Stock Market Rout, Investors Still Love LeTV

In early July, the value of LeTV's Shenzhen-traded shares was 88.6 billion yuan, up more than 100 percent from last year. The company's market cap peaked on May 12 at 150.7 billion yuan. Letv.com has outperformed many rivals in the stock market, including Youku Tudou Inc., which is valued at around 19 billion yuan on the New York Stock Exchange.

Analysts say they are excited about LeTV's future. Huatai Securities predicts that its revenue will reach 20 billion yuan this year and 38 billion yuan in 2016. The company's market cap is expected to rise to as much as 270 billion yuan next year. Galaxy Securities has even forecast that the figure will hit 250 billion yuan by the end of this year.

Investors are betting on the company's business strategy, which is intended to create an integrated business chain that includes online video sharing, content production, mobile applications and device production. The company's moves to expand into sports, automobile computer systems and cloud computing have also been warmly received by the market.

Another unfocused company.

LeTV's Internet TV business has been under something of a shadow because it lacks a license for it to provide Internet content on TV sets. In July last year, the State Administration of Press, Publication, Radio, Film and Television, the media watchdog, tightened control of video content streaming into living room TVs, forcing LeTV to halt the sales of its set-top box and make changes to its Super TV.

LeTV has been working to get a license to revive its Internet TV business. The company has been negotiating with Huawen Media Investment Corp., a company controlled by state broadcaster China Radio International (CRI), about possible cooperation since October, a person close to LeTV said.

The deal being discussed includes LeTV making a 1.6 billion yuan investment in Huawen and its parent, Global Broadcasting Media Group (GMG), an investment subsidiary of CRI, the person said. This would provide LeTV access to the Internet TV license that CRI holds. "Jia is willing to pay 1.6 billion yuan for the license," said a source close to the negotiations.

Why Did QIHU Go Private?

EO: 360为什么私有化

Zhou did not address this issue since then interviews with the media, he only referred to his intention to privatization within the letter. "In order to better the future development of 360 (QIHU), old Qi (Qi Xiangdong, president refers to 360) and I after careful thought, he decided to start 360 privatize strategic plan, which is an active strategic choice after the repeated consideration of the current global and Chinese capital market environment made . "He said," our company among many people think that 360 is currently $ 8 billion in market capitalization, did not fully reflect the value of the company. "

This is the tenth since June takes shares in privatized companies made the offer, on the same day, Renren (RENN) and 21 Vianet (VNET) announced it will be privatized, their goal is to return to A shares mostly. Baofeng is up 43 times in the past three months, those gains are persuasive enough, its market value is equivalent to eight times that of Xunlei (XNET) in the United States; Leshi (300104), as also a good example, its market capitalization is 8 times that of YoukuTudou (YOKU).

This paragraph discusses something I would have expected companies to do instead: list on both exchanges.

In fact, a few months ago, there are rumors in the capital level will be 360 ​​this year, a big move. And in May this year, the formal establishment of 360 corporate security group has shown that this is not just a rumor. 360 insiders said the company is to be listed separately, Qi Xiangdong In an interview with this reporter, have hinted at these types of companies in the A share market would be a good choice, "the A-share listed? Please enjoy we hope to help. "

At that time, most would guess are 360 ​​theme of "split" rather than privatization now. According to speculation capital circle 360 ​​will further sort out the current three core businesses: security, commercial (search, browser, cash flow distribution platform product) and hardware, and then seek a separate listing for each business.

Which it has a certain logic. Three business valuation model is completely different from last year, 360 have been aware of the seriousness of this problem. According to media reports, Cool great God to remove investment and NETCORE (do a router company), the 360 ​​also invested in dozens of the great potential of the new hardware company. Zhou Hongyi that with the advent of the era of things, the 360 ​​must regain the right to speak at the hardware level, but this has not been recognized by Wall Street.

The main reason to leave the U.S. may be the lack of understanding of the Chinese market on Wall Street. The American market focuses on innovation, while the Chinese aim to make money.

"The US stock market relatively advocating innovation, innovation-driven market; and more Chinese enterprises are business-driven model like this game very common in the United States, it is difficult to be optimistic about the current state of development. 360 doesn't have much imagination, especially now involved in the mobile business, the US market is more not read. "said Fang Xingdong, chairman of the Internet Lab.

Therefore, the logic is more conventional corporate security and hardware these two new services in the domestic market alone, and 360 in order to continue business into the main company listed on the NYSE.

The fallout from the the Snowden affair my also be having an effect:

360 is now faced with a somewhat "panic" in China. After Snowden event, national levels, especially government ministries, the central enterprises and large private enterprises on the importance of information security surge.

"You look up how many times last year opened a related forums and conferences, you know how hot, sometimes five or six games in one day." 360 technology vice president, said Tan Xiaosheng, he is now second in command of 360 corporate security group. 360 can refer to the information security template is now the leading stocks Venus A shares in the past month, its stock price reached its highest point in five years of its listed --73.1 yuan, and after the company's stock price hovered perennial down 20 yuan.

Although the Chinese government has not banned foreign information security companies can not enter China, but this thing in the future will be more and more impossible. First, companies such as the United States Fireeye thanks to the cooperation with the military very close, so the US government is prohibited "export"; Second, the Chinese government will be in accordance with the relevant provisions of security There are some requirements for foreign companies, such as submit their own core code before it can carry out services in the country, but not too much foreign companies are willing to accept such a request.

Going private may not be a smooth ride though. The Focus Media reverse merger onto the A-share market may fail.

Even if all of them are optimistic about the return of 360 A shares, but it does not mean you can sit back and relax Zhou. Focus Media backdoor Hongda New Material is likely to die, which the Commission is to initiate an investigation. Moreover from stocks privatization, then the A-share listed a variety of ways is an extremely complex project. "Our listing process can be organized into a textbook, and hired a global law firm devoted to storm the market, and a summary of the return of red chips." STORM CEO Feng Xin said.

Will the Chinese bull market last long enough?

Delisting from the United States needs 6-12 months, in accordance with the relevant provisions of the queue in the domestic market after three years of the matter is. Even this year, the formal implementation of the registration system, they have needed one or two years time, go directly to the new board listing Maybe time will be shortened, but its financing capacity, compared with the secondary market is still a gap.