Betting on a comeback

Faraday Future has a new investor

If hard times reveal true friends, there is no better time to cement loyalties than when people run into financial trouble.

It is well-documented that Tung Chee-hwa’s shipping line stayed afloat in the 1980s with timely support from the Chinese government. Likewise, after Macau business boss Ho Yin died in 1983, Beijing supported his son Edmund Ho through financial trouble at the family firm.

The pair would go on to become the first political leaders of Hong Kong and Macau respectively when the former colonies returned to Chinese rule in 1997 and 1999.

Now a troubled mainland Chinese businessman has been getting some help – though this time not from the government.Instead fellow tycoons have thrown a lifeline to LeEco’s founder Jia Yueting as his firm plunges deeper into debt.

When Jia’s ambitions to disrupt Tesla (as well as Netflix and Apple) first began to unravel in late 2016, newspaper CBN said a group of his classmates from the Cheung Kong Graduate School of Business came to the rescue by lending him $600 million.

A few months later, property developer Sunac China would become another major creditor, pumping more than $2.2 billion into LeEco.

Most of these backers are now counting their losses after a number of LeEco’s key units filed for bankruptcy, and Sunac’s boss Sun Hongbin says he deeply regrets his backing of the troubled conglomerate. “People should admit defeat because sometimes it works, sometimes it doesn’t,” he told investors in January.

But the experience does not seem to have prevented Jia from finding new friends. LeEco’s Shenzhen-listed unit Leshi Internet said last week that affiliates of the internet giants Tencent and JD.com have teamed up with TV maker TCL and retailer Suning in a Rmb3 billion ($473.59 million) investment in Leshi’s TV manufacturing unit New Leshi.

In a stock exchange circular Leshi said the new funds would help to bridge capital shortages as the company repays Rmb5.6 billion of debt by the end of this year.

The new investors seem to be hoping that smart TVs will drive 020 sales. Sina Finance also reckons that the likes of Tencent and JD.com are putting money into a healthier part of Leshi, where they can take control in event of a further default.

China Evergrande’s boss Xu Jiayin is another major name to offer Jia “coal in the snow” – a local saying for offering help in extreme times.

Yixian, a financial news platform run by Tencent, reported earlier this month that a Hong Kong-based company controlled by Xu has invested $300 million for a fifth of Faraday Future, Jia’s California-based electric vehicle (EV) start-up. As a condition of allowing Evergrande to become Faraday’s largest shareholder, LeEco’s Jia is said to have requested to keep his position as chief executive for another 15 years. Evergrande, meanwhile, says it wants to invest Rmb100 billion in tech businesses to complement its core property holdings (see WiC404). However, the production of electric vehicles probably isn’t the primary motivation, CBN suggests, and Xu may be more interested in steering companies like Faraday Future into projects on the high-tech industrial campuses he wants to build across his land reserve.

Faraday Future’s China unit Ruichi Smart Car has just acquired a 400,000 square-metre site earmarked for EV production for Rmb364 million in Guangzhou, where Xu started his own business empire. It is required to put the plant into production within two years and Xu has sent his financial team over to Faraday to review the plan, Yixian says.

The investment could turn out to be a bigger bargain if LeEco’s founder Jia can firm up Faraday’s aspirations for leadership in the EV sector (see WiC404).

In fact, Evergrande’s Xu has survived several liquidity crises of his own. His card-playing buddies – some of whom are Hong Kong billionaires – helped him come through the toughest times and they are now reaping handsome rewards themselves on investments made in Xu’s businesses (see WiC364).

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.