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Dec. 5 (NBD) -- Founder Securities has brought a current and a former senior executive of Leshi Internet Information & Technology Corp (hereafter referred to as "Leshi") to court over share pledge issues, lodging a request for a mandatory order that requires the involved executives to pay off the capital and interest as soon as possible, according to the company filing released on Monday night.

In October 2016, Leshi Vice Chairman Liu Hong signed a stock-pledged repo transactions agreement with Founder Securities, exchanging 100 million yuan (15.13 million U.S. dollars) with 6.5 million Leshi shares. The debt was co-undertaken by Liu and his wife Shan Liuhuan.

In early 2017, Liu signed a supplementary agreement with Founder Securities, pledging an additional 2 million Leshi shares to the company.

On August 25, 2017, Leshi announced a decision to convert every 10 shares of the company to 20. Accordingly, the number of shares pledged by Liu doubled to 17 million.

However, in late July, Liu's collateral pledged was all frozen by court. According to the agreement, Founder Securities is entitled to ask for a repo in advance. However, both Liu and his wife didn't pay off their debts as agreed.

Yang Lijie, former CFO of Leshi, also faces similar trouble. In June 2016, Yang pledged 4.8 million Leshi shares to Founder Securities for 80 million yuan (12.10 million U.S. dollars). The two sides have also reached several supplementary agreements afterwards. So far, Yang has used 12.324 million Leshi shares as collateral.

It is worth noting that Leshi Holding (Beijing) Co., Ltd. acted as the guarantor of Yang, which means the company is liable for Yang's debt.

NBD noticed that Leshi shares have been suspended from trading since late April this year, but they have been continually devalued by the market (mainly fund companies). As of the end of November this year, Leshi shares have undergone three rounds of devaluation.

The first round of depreciation occurred in July when the company's assets were frozen by court. At that time, China Post Fund and Harvest Fund lowered the target price for Leshi shares to 22.73 yuan (3.44 U.S. dollars). In late October, Leshi reported a net loss of 1.652 billion yuan (249.88 million U.S. dollars) for the third quarter, sending its target share price to 7.5 yuan (1.13 U.S. dollars). In November, reports said that former Leshi Chairman Jia Yueting and his sister Jia Yuefang failed to fulfill their promises to lend money to Leshi due to their own capital and debt issues, dragging down the company's target price further to less than 4 yuan (0.61 U.S. dollars), with the lowest at 3.89 yuan (0.59 U.S. dollars).

If Leshi shares were priced at 3.89 yuan (0.59 U.S. dollars) each, the collaterals offered by Liu and Yang were only worth at 66.13 million yuan (10.00 million U.S. dollars) and 47.94 million yuan (7.25 million U.S. dollars), respectively, by now.  

As the collaterals continue to depreciate, Founder Securities demands Yang to repurchase her shares in November. However, Yang also failed to keep her promise.

Founder Securities had no option but to sue Liu and Yang as well as their spouses.

Email: tanyuhan@nbd.com.cn