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China's Sunac washes its hands of embattled Leshi with $2.6 billion charge

HONG KONG (Reuters) - Sunac China, the country’s No. 4 developer, said its investment in Leshi Internet Information & Technology Corp Beijing was a failure and would book a $2.6 billion charge, sending shares in the embattled tech firm sliding.

A person walks past the building of Leshi Internet Information & Technology Corp in Beijing, China March 15, 2018. Picture taken March 15, 2018. REUTERS/Stringer /Files

Sunac Chairman Sun Hongbin had once been widely viewed as a white knight for the crumbling LeEco conglomerate, of which Leshi has been the main listed vehicle.

His remarks follow his resignation as chairman of Shenzhen-listed Leshi last month - just eight months after he took on the job.

Shares of Leshi plunged more than 8 percent to a five-week low in early trade.

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

Debt-laden and cash-strapped Leshi received a $2.2 billion investment from Sunac in January 2017. Leshi’s parent LeEco was once China’s Netflix-to-Tesla contender, but ran into a cash crunch in late 2016 after expanding too fast.

Sunac also said core profit for 2017 more than tripled to a record 11.12 billion yuan, helped by a big jump in revenue.

The gearing ratio of the acquisitive developer fell to 66.9 percent, from 72.2 percent as of June 30. It vowed in August to slash the ratio to 70 percent by 2019 by slowing its rate of land purchases.

The Tianjin-based company said it expects tourism projects bought from Dalian Wanda Group in July for $6.5 billion will drive earnings in the next 3 to 5 years and that it 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 up 480 percent, Sunac jumping 460 percent, and Country Garden climbing 270 percent. Nine other developers saw their shares surge more than two-fold.

Sunac shares slipped 0.8 percent after the results.

($1 = 6.3001 Chinese yuan)

Reporting by Clare Jim; Editing by Anne Marie Roantree and Edwina Gibbs