The worst outcome for LeTV is that Jia Yueting loses control. How can the stock price collapse?

After writing the article, I suddenly realized that this is actually a math word problem of several thousand words. In order to avoid inconvenience for some friends to understand, I simply summarize the ideas in the article for easy reading.

First, since the equity pledge rate of LeTV has not been announced, it is impossible to determine the liquidation line of 35.21 yuan announced by the market, and the outside world can only estimate the liquidation range. Therefore, it is difficult to determine whether LeTV has reached the liquidation line.

Second, if LeTV really triggers the liquidation line, the 180 million bank credit line reported by the media is simply a drop in the bucket, which may not be enough for LeTV to replenish its positions in one day. Of course, LeTV can negotiate with the financing borrower on the specific details of the replenishment, and the actual replenishment will be discounted.

Third, if LeTV wants to get out of the equity pledge crisis, it must find a way to boost its stock price (such as maintaining a good relationship with the holding institutions, or trying to put LeTV Pictures into the listed company?), and try to separate the business of LeTV, a listed company, from the non-listed business of LeEco Ecosystem. Otherwise, LeTV may face the same predicament as Zhongheng Group, and the worst result is that Jia Yueting may lose control of LeTV. Of course, this is the worst possibility, and perhaps Jia Yueting's classmates at Cheung Kong Graduate School of Business will not let this happen.

It now seems that Jia Yueting's grand ecological dream is actually based on LeTV's unstable and unreliable stock price and market value.

LeTV has suspended trading, and the stock price before the suspension was 35.8 yuan. The suspension announcement shows that the reason for the suspension is that the company intends to disclose major matters.

According to the practice of A-share listed companies issuing suspension announcements, suspension announcements that do not involve major asset restructuring usually resume trading within a few days and will not be suspended for a long time. It is expected that LeTV will announce the resumption of trading after finding good news that can boost its stock price.

As for the reason for LeEco's emergency suspension, the market analysis is that the stock price plummeted on the 6th, closing at 35.8 yuan. The news on the same day was that LeEco's subsidiary LeEco Sports laid off 10% of its employees.

According to market news, Jia Yueting has pledged 507,332,300 shares of equity for financing, accounting for 64.81% of Jia Yueting's pledged shares, and the liquidation line is 35.21 yuan. In other words, LeTV fell below the liquidation line of the equity pledge during trading yesterday.

Without a definite pledge rate, how is LeTV's liquidation line calculated?

According to an announcement from Juchao Information, this share pledge, which is said to account for 64.81% of Jia Yueting's pledged shares, took place on October 26, 2015.

Frankly speaking, you should not believe any clear liquidation line price given, because it is difficult to calculate the exact liquidation line if the pledge rate is not clearly announced to the public.

Although many trusts, banks, and securities companies have stated in the "Stock Pledge Agreement" that the maximum pledge rate cannot exceed the 80% upper limit.
However, in actual operations, for companies listed on the ChiNext, the pledge rate basically remains at around 30% to 45%. For very high-quality non-restricted stocks, the pledge rate may exceed 50%.

Here we estimate that the pledge range of LeEco is about 35% to 55%. LeEco is a GEM listed company, and the pledged stocks are mostly in the restricted period, so the pledge rate is usually not too high. There may be two pledge rates for restricted stocks and non-restricted stocks, and it is obvious that the restricted stocks will have a lower pledge rate.

According to the usual operation method of equity pledge, the pledge target price is the average price of the 20 trading days before the day of stock pledge. For LeTV, the stock price fluctuated between 42 yuan and 50 yuan in the 20 trading days before October 26, 2015.

The preliminary 20-day average price of the stock is planned to be 46 yuan. Based on the standard that the stock pledge rate fluctuates between 35% and 55%, the stock pledge price of LeTV is in the range of 16.1 yuan to 25.3 yuan.

Considering the 160% warning line and 140% liquidation line of the ChiNext, the price range for LeTV to trigger the warning line is between 25.76 yuan and 40.48 yuan. The price range for triggering the liquidation line is between 22.54 yuan and 35.42 yuan.

Combined with the number of pledged shares of 507.332 million shares, the warning line is in the range of 13 billion yuan to 20.5 billion yuan, and the liquidation line is in the range of 11.3 billion yuan to 18 billion yuan.

It should be noted that the warning line and liquidation line are usually called warning lines, but in fact they are not "lines" but warning intervals and liquidation intervals, because equity pledge financing requires interest payments. Even if the pledge rate is determined, there will be upper and lower limits for the warning and liquidation intervals due to different interest payment situations.

Without a clear pledge rate, it is difficult for the outside world to confirm whether LeTV has triggered the liquidation line. LeTV officials said that the rumored liquidation price data does not match the actual situation and is purely speculation. If the official can announce the specific pledge rate and liquidation line, this response can better boost investor confidence.

For LeTV, if the market loses confidence and sells off its shares because it believes that LeTV is short of funds, then after the stock price continues to fall, it is only a matter of time before LeTV triggers the warning line and liquidation line.

Initially, LeTV failed to clearly separate the listed business from the unlisted business. Many analysts believed that the unlisted business propped up LeTV's valuation. Now, LeTV is also affected by the unlisted business and is also affected by price fluctuations.

If the liquidation line is triggered, LeTV's funds will be really stretched.

At this stage, the outside world can only rely on speculation as to whether LeTV has reached the liquidation line in the absence of any announcement.

What if the shares pledged by Jia Yueting really reach the liquidation line? Cover the position, but this is a technical job.

This is because if Jia Yueting or other LeTV shareholders continue to pledge their shares or the borrowers continue to sell off their shares to cash out, it will send a signal to the market that LeTV's capital chain is further strained, which is not conducive to the stability of its stock price.

It seems that the only option left for Jia Yueting is to cover his position with cash.

However, for such a large shareholder to pledge stocks in a concentrated manner, the amount to be covered is not a small amount. Here is a simple calculation.

If the liquidation line is triggered for one day, how much cash will LeTV need to cover the position?

In the case that the pledge range cannot be determined, according to the above calculation, LeTV's warning line is between 13 billion and 20.5 billion. Before the suspension, LeTV's stock price closed at 35.8 yuan, and the market value of the pledged shares was 18.16 billion yuan.

According to the margin call value, LeEco's margin call costs are estimated to be between 0 yuan and 2.3 billion yuan. (Note: This is an estimate when the pledge rate is uncertain) So LeEco really needs to make up for its losses, and the 180 million yuan of unused bank credit announced by the media is simply a drop in the bucket.

If LeTV's stock price continues to fall, it will be even more tragic, and the amount of money to cover the position will have to continue to increase.

Of course, LeTV can negotiate with the borrower on the specific details of the margin call or whether margin call is needed. After all, if the forced liquidation is really necessary, these shares will not have much capital preservation advantage if they are put on the market for circulation, not to mention that some of the shares pledged by Jia Yueting are restricted shares.

Will LeTV be this year's "Zhongheng Group"?

Speaking of equity pledge crisis, the most famous case in recent times should be Zhongheng Group (600252). Last year, Xu Shuqing, then chairman of Zhongheng Group, was suspected of "unit bribery" and was taken compulsory measures by the procuratorate. This negative news affected Zhongheng Group's sales and revenue dropped sharply.

As a result, on September 26, 2015, Zhongheng Industry was unable to repay the 370 million yuan loan raised by pledging its equity to Zhongrong Trust in the previous year. Two days later, Zhongheng Industry said that Zhongrong Trust agreed to extend the repurchase period to March 26, 2016.

In the end, the largest shareholder, Zhongheng Industrial, was still short of funds and sold its 20.52% of Zhongheng Group shares to Guangdong Investment Group at a price of 5.44 yuan per share, thus withdrawing from the ranks of Zhongheng Group's major shareholders.

Zhongheng Group's equity pledge crisis ended with the withdrawal of the major shareholder. Will LeTV.com do the same?

What would happen if LeTV was forced to close its positions because it could not make up for the losses in time? Obviously, the shares held by Jia Yueting, the largest shareholder, would be forced to sell.

The selling of the major shareholder's shares will cause LeTV's stock price to continue to fall, both in terms of funds and news. Therefore, even if the financing borrower wants to deal with it, it would not be a good idea to sell it publicly in the secondary market. Perhaps other investors will be introduced to purchase shares.

From the perspective of LeEco's fundamentals, LeEco has good growth potential, and LeEco has given LeEco its super TV, advertising and other businesses that have mature profit models and can be directly monetized. This is a fast-growing investment target, but it is dragged down by the funding chain problems of other non-listed businesses in the LeEco ecosystem.

Even if a share pledge crisis really occurs, LeTV will not collapse like the Delong Group. LeTV has real business and cash flow inflow. It is not like the Delong Group that uses the listed company platform to obtain funds for leveraged financial operations.

The worst outcome of LeTV's equity pledge crisis could be that Jia Yueting's shares would be reduced, or even that he would withdraw from his position as LeTV's largest shareholder. The probability of a collapse should be very small. For LeTV, the worst outcome would be to become this year's "Zhongheng Group."

Jia Yueting may not be a liar, but he is just a dreamer who spends too much money. The variable of LeTV at this stage lies in how many institutions Jia Yueting can convince to continue to hold or increase LeTV shares. During the suspension period, Jia Yueting communicated with fund managers, and calming investors' panic and restoring market trust were the top priorities.

So, Jia Yueting, what are you busy with now?

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.