March 29, 2018 / 3:46 AM / 6 months ago

UPDATE 2-China's Sunac washes hands of embattled Leshi with $2.6 bln charge

* Sunac chairman describes Leshi investment as a failure

* Leshi shares slip more than 8 percent

* Sunac’s 2017 core profit more than triples to record (Adds comments, background)

By Clare Jim

HONG KONG, March 29 (Reuters) - Sunac China described as “a failure” its investment in debt-laden Leshi Internet Information & Technology Corp Beijing and said it would book a charge of $2.6 billion, sending shares of the tech firm down as much as 8 percent.

Leshi is unable to raise more funds, said Sunac Chairman Sun Hongbin - widely viewed as a white knight after he announced a 15 billion yuan ($2.38 billion) investment for the crumbling LeEco group, of which Leshi has been the main listed vehicle.

Sun resigned as chairman of Shenzhen-listed Leshi last month - just eight months after he took on the job - and explained at a Sunac earnings briefing on Thursday that the move was so he could speak freely about the video streaming provider.

Sunac, China’s No.4 property developer, was “preparing for transformations to sustain growth” as the real estate market is slowing down and “we paid a price”, Sun said.

Leshi, which is battling the fallout from a severe cash crunch at its founder Jia Yueting’s LeEco, did not respond to Reuters’ request for a comment.

LeEco was once China’s Netflix-to-Tesla contender, but ran into cash problems in late 2016 after expanding too much, too soon. Relief came in January 2017 in the form of the cash infusion from Sunac into three of LeEco’s units.

Sun said there were still prospects for LeEco’s TV and movie business, the two other units he had invested in, but he was willing to sell his Leshi stake if there was buying interest.

Leshi has a market capitalization of about 20 billion yuan and held 4.7 billion yuan debt as of the end of September.

Sunac executives, seeking to reassure investors, said the developer would not have to worry about a negative impact from Leshi in the future.

Shares of Leshi plunged more than 8 percent to a five-week low in early trade. The stock has shed about two-thirds of its value so far this year.

Sunac shares edged up, as the company distanced itself from the troubled Leshi. The stock had earlier dipped after the company announced its annual results.

SUNAC RESULTS

Sunac’s core profit for 2017 more than tripled to a record 11.12 billion yuan, helped by a big jump in revenue, while its gearing ratio fell to 66.9 percent, from 72.2 percent at end-June.

However, the gearing ratio, a key indicator of the company’s leverage, would be higher if perpetual capital securities were categorized as debt instead of equities.

Controlling debt will be in focus over the next two years, and the company will do so by speeding up inventory clearing to raise cash flow, as well as controlling the pace of acquisitions and investments, Sunac CEO Wang Mengde said.

Chairman Sun said: “The property tightening policies now have a large impact on the market ... because of the changing policies, it’s important for us to control risk.”

China’s home price growth is likely to stall in 2018 as a boom in smaller cities is expected to lose steam while measures to tighten credit and other property curbs continue to constrain the market, a Reuters poll from December shows.

The Tianjin-based Sunac said it expects tourism projects bought from Dalian Wanda Group in July for $6.5 billion will drive earnings in the next three-five years.

The company also aims to boost contract sales by 24 percent this year to 450 billion yuan.

China property stocks were among the best performers in Hong Kong in 2017, propelled by robust sales, with Evergrande Group and Sunac shares jumping five-fold and Country Garden rising three-fold. Nine other developers saw their shares surge more than two-fold. (Reporting by Clare Jim; Editing by Edwina Gibbs and Himani Sarkar)

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