What are the risks of LeTV's stock market after its resumption of trading?

This is a highly anticipated resumption of trading for LeTV (300104.SZ). On January 16, after LeTV received 16.8 billion yuan in funding, LeTV officially resumed trading after being suspended for exactly one month. However, the good news of the introduction of 10 billion yuan in investment failed to drive its stock price up on the first day of resumption. After a day of "struggling", LeTV finally closed down 1.12%. In the industry's view, this is not only due to the overall plunge in the ChiNext, but also shows that the market is still worried about LeTV's capital chain.

For LeEco, Jia Yueting, the helmsman of LeEco, and LeEco's shareholders, it is very important to maintain LeEco's stock price. Previously, the continuously falling LeEco stock price had been like a sword of Damocles hanging over Jia Yueting's head. Every drop in the stock price put LeEco's equity pledge at risk. Of the 10 billion yuan financing finalized on January 13, 3 billion yuan of "special funds" will help Jia Yueting release this part of the pledge, and the funds will arrive in his account at the latest this Friday.

The falling stock price will also increase the risk of LeTV's margin trading. Previously, a margin trading person from a securities firm told the First Financial reporter that for some margin trading customers, the decline of LeTV since November 2016 has been quite dangerous and it is difficult to bear a sharp decline. Data shows that within one month of suspension, LeTV's margin trading shrank by more than 500 million yuan. LeTV's 510 million yuan employee stock ownership plan is also facing similar risks. The plan is issued in the form of a tiered asset management product with a leverage ratio of 1:1 and has currently suffered a floating loss of 24%.

As the stock price fell, the movements of some important investors also attracted market attention. Xingen Fund, the former second-in-command of LeTV, significantly reduced its holdings last year and had previously publicly stated that it was willing to stand by LeTV through thick and thin, but also expressed "dissatisfaction" with Jia Yueting's spending money on car manufacturing. It is not known whether it will take relevant actions after the resumption of trading.

Resumption of trading

On January 16, LeTV resumed trading after a month-long suspension, and opened up more than 3%, but after the stock price rose to 38.98 yuan per share, it began to fall. In the end, LeTV closed at 35.40 yuan per share that day, down 1.12% from the previous trading day. After-hours data showed that LeTV traded 96.9488 million shares that day, with a transaction volume of 2.831 billion yuan and a turnover rate of 7.68%.

Before the highly anticipated resumption of trading, LeEco, which was in deep crisis, had just finalized a valuable financing. LeEco disclosed on the evening of January 13 that LeEco Zhixin, LeEco Pictures and LeEco.com, through equity transfer, capital increase and share expansion, obtained a total of more than 16.8 billion yuan in funds from Jiarui Huixin, a subsidiary of Sunac China, LeEco's affiliated party LeRan Investment and China Life Insurance. Of this, about 15 billion yuan came from Jiarui Huixin.

On the first trading day after the good news was released, Sunac China's stock price also failed to recover from the downturn. After opening 8.8% lower, the intraday decline narrowed to 6% at one point, and then fell again in the afternoon, closing down 8.1% at HK$6.7, with a turnover of 118.4 million shares and a turnover of HK$800 million.

LeEco received 10 billion yuan in financing, but its stock price did not meet expectations. Institutional insiders believed that LeEco's resumption of trading was "untimely". The ChiNext performed poorly both during the suspension and after the resumption.

During the period when LeTV resumed trading, the ChiNext Index fell from 2122.26 points to the latest 1899.94 points, a drop of 10.47%. The AMAC information industry index, where LeTV is located, fell from 4028.81 points to 3558.27 points, a drop of about 11.68%. On the first day of resumption of trading, A shares suffered a "Black Monday", with the ChiNext Index falling 69.09 points, a drop of 3.64%, which once hit a new low since the circuit breaker last year.

"It is inevitable that the stock will fall after resuming trading, and today's sharp drop in the ChiNext has also affected it." In the view of a Shanghai public fund manager, although LeTV's stock fell on the first day of resuming trading, the magnitude is still acceptable. "The overall environment is not favorable for it, and the market still has doubts about LeTV's capital chain, such as how long the 16.8 billion yuan will be enough and how to use it. It is still unknown whether the money raised can really save LeTV." He said.

Sufficient funds have always been seen as the key to solving LeTV's crisis. Of the 16.8 billion yuan of funds led by Sunac, about 7 billion yuan actually entered the listed company LeTV system, and some of them came from the listed company's related parties, and the rest went to Jia Yueting and LeTV's non-listed system companies. Jia Yueting will personally receive 6.041 billion yuan by transferring 8.61% of LeTV's shares, of which 3 billion yuan will be used first to release the pledge established on LeTV's rights and interests.

However, Jia Yueting's latest statement on the 6.041 billion yuan is that it will all be invested in LeEco companies to help the development of LeEco's ecosystem businesses. It has not been stated whether the investment will be in LeEco Auto or other businesses.

Stock prices that can’t afford to fall

As the only listed platform of LeEco, LeTV.com bears the heavy responsibility of providing blood transfusion for the entire LeEco. The change of its current stock price has become the lifeblood of the entire LeEco and Jia Yueting, and also concerns the capital risk of more investors. For them, the stock price trend of LeTV.com in the week of resumption of trading is particularly important.

Judging from the performance on the first day of resumption of trading, although the decline of LeTV is not large, every step of the decline will bring real pain to it and its investors.

The first to be affected are the large number of equity pledges by Jia Yueting and his related parties. Financial report data shows that as of the end of the third quarter of last year, of the 683 million shares of LeTV held by Jia Yueting, 571 million shares are currently pledged. In other words, nearly 84% of Jia Yueting's shares are used for pledge financing. Coincidentally, Liu Hong and Jia Yuemin, the third and fourth largest shareholders of LeTV, also pledged some of their shares. Among them, Jia Yuemin holds 43.9472 million shares of LeTV, accounting for 2.22% of the shares, and the pledge rate is as high as 95.16%.

According to a previous investigation by China Business News, as the stock price continued to fall, Jia Yueting's large number of equity pledges were on the verge of danger. Around 2013, when Jia Yueting and other shareholders pledged LeTV's equity for financing many times, the maximum pledge rate was set at 40%. When the pledge rate reached or exceeded 60%, additional margin or pledged assets were required. Industry insiders also said that the equity of listed companies is relatively flexible at present, with a pledge rate between 30% and 70%, but the pledge rate of the Growth Enterprise Market is generally up to 40%, and the liquidation line is around 60%. Based on this calculation, before the resumption of trading, Jia Yueting's equity pledge rate had reached about 53%, and replenishment was imminent. On the first day of resumption of trading, LeTV fell 1.12%.

However, emergency funds are already on the way. According to the agreement with Sunac China, 3 billion yuan of the funds obtained by Jia Yueting through the transfer of LeTV shares will be used first to release the pledge on LeTV's equity, and will be received this week.

The risks from margin trading have also been repeatedly concerned by the market. Public data shows that before the suspension, LeTV's margin trading balance was 5.006 billion yuan, of which the margin trading balance was 4.998 billion yuan and the short-selling balance was 6.09 million yuan. The margin trading accounted for more than 10% of LeTV's circulating market value. Before June 2016, LeTV's margin trading was stable at around 3 billion yuan. However, during the month-long suspension, the margin trading of nearly 5 billion yuan has shrunk by more than 10%, which has reduced the risk accordingly.

But what is less known is that for some core employees of LeTV, the decline in the company's stock price is also inseparable from the safety of their funds. On September 20 last year, LeTV's first phase of the 510 million yuan employee stock ownership plan was officially completed. The employee stock ownership plan bought a total of 10.9535 million shares of LeTV, accounting for 0.55% of the company's total share capital, with a term of 12 months. The plan is issued in the form of a graded asset management product with a leverage ratio of 1:1, and the priority shares and subordinated shares are adjusted to 1:1, with an upper limit of 510 million shares. Based on the average purchase price of 46.61 at the time, the current floating loss is 24%.

LeTV's shareholders also suffered huge losses due to the stock price drop. As the stock price fell, some important investors and shareholders were also drifting away from LeTV. Its second largest shareholder, Xingen Fund, had previously significantly reduced its holdings. LeTV's 2016 semi-annual report showed that as of the end of June 2016, Xingen Fund held 93.4 million shares, reducing its holdings by 6.6 million shares. By the end of September last year, Xingen Fund's holdings had further dropped to 70.05 million shares, and its shareholding ratio had dropped to 3.53%, with a reduction of 29.95 million shares in more than three months.

Previously, Zeng Qiang, the head of Xingen Fund, had publicly stated through the media that as the second largest shareholder of LeTV, he would stand by LeTV through thick and thin, but hoped that Jia Yueting would be more focused. After LeTV introduced Sunac to replace its second largest shareholder, Xingen Fund has not yet made any relevant statement or action.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.