Leshi admits to major accounting problems

A man walks past the headquarters of internet company LeEco in Beijing.(Photo by Chen Weixi/ For China Daily)

Leshi Internet Information& Technology Corp, the listed arm of troubled Chinese internet company LeEco, told a shareholder meeting on Friday that it is facing a major accounting problem due to the huge related party transactions.

The company, however, said it will continue to emphasize on its main business, reduce expenditure and seek help from shareholders. Though there has been no substantial improvement in the overall situation until now, it will continue to stay in close communication with the related parties, it said.

Leshi shares surged 8.85 percent to 5.29 yuan (83 cents) on Friday after it resumed trading in the Shenzhen Stock Exchange from January 24.

The company also clarified in an announcement it has not formed any substantive plans and intentions on the "reorganization" reported by some media.

Liu Shuqing, general manager of the company, said at the meeting it is of utmost urgency to resolve the financial strain, but Liu acknowledged the difficulty in letting the non-listed units of LeEco to repay the outstanding debt.

"We will integrate high-quality resources, focus on the internet-connected television business, as well as reduce the expenditure on non-performing assets," said Liu.

Sun Hongbin, chairman of Leshi, was absent from the meeting. Sun's absence does not mean that he does not care about the development of the company, said Zhao Kai, secretary of the board.

"The communications between the board of directors and LeEco founder Jia Yueting as well as Jia's two agents in the domestic market are smooth. There has also been communication on the debt problems arising from the related transactions."

Zhao added that the disposal of Jia's shares is his personal matter.

Last year, Jia resigned from all his positions at Leshi due to unpaid debt and financial crisis, but still remained the largest share-holder, holding 1.024 billion shares of the company, which account for 25.67 percent of the total shares.

Jia is now focusing on LeEco's automobile unit and struggling to raise capital to fund a US-based electric car startup Faraday Future.

Shen Meng, director of boutique investment bank Chanson & Co, said it is difficult to stem the decline of Leshi even though new capital and assets have been injected into the company.

Last month, Leshi scrapped a prior plan to purchase Le Vision Pictures, a filmmaking arm of LeEco, and said it expected a net loss in 2017.

Its net profit witnessed a decline of 446 percent in the first three quarters of 2017, compared with the same period in the previous year.