Heng Ren Questions Jumei's (NYSE: JMEI) Increasingly Erratic Use of Shareholders' Cash

Published on September 25, 2017 7:55 AM

(SI Newswire) This is the English version of a letter we sent to Jumei International Holding’s (NYSE: JMEI) Board of Directors regarding information about their new online lending business, and their increasingly erratic use of shareholders’ cash.

September 24, 2017

To Chairman Leo Ou Chen and the Board of Directors of Jumei International Holding,

This letter is regarding the recent development that Jumei (NYSE: JMEI) has launched an online lending business. Jumei launched this without any notification or disclosure to shareholders about a change in business.

As a Jumei shareholder we view this development with surprise and disappointment. Jumei is making another costly, questionable, cash-intensive investment in a non-core, high-risk business that could be a waste of shareholders’ money.

Our concern is heightened by the fact that Jumei has not yet disclosed any information at all about its financial condition in 2017 to shareholders or U.S. regulators.

Also, a $7.00 per share buyout offer proposed in February 2016 by Chairman Chen, Jumei co-founder Yusen Dai, and Sequoia Capital China, a venture capital firm founded and led by Managing Partner Neil Shen, has gone dark for 19 months. Jumei’s stock now trades at $3.05.

Obviously all this is causing significant uncertainty among investors with $489 million in market value destroyed for Jumei shareholders since the bid.

Here is a link to the Chinese version of the letter: CLICK HERE

Since Jumei and its Board of Directors and Executive Officers –

Leo Ou Chen – Chairman and CEO Sean Shao – Director Zhenquan Ren – Director Mang Su – Director Adam J. Zhao – Director Huipu Lu – Senior VP Yunsheng Zheng - CFO

- have never officially disclosed to shareholders any information about Jumei’s new online lending business, we have some fundamental questions to ask on behalf of our investors and other Jumei shareholders:

- Does Jumei have a license to make online loans in China?

- What is the source of the funds for these Jumei loans to online borrowers? Is it cash from our balance sheet, i.e. shareholders’ money?

- What is the total amount loaned? How many Jumei loans have been made?

- Please describe Jumei’s risk management system and the credit analysis to evaluate loan applications.

- What percentage of the loan applications are declined by Jumei?

- What is the APR (annual percentage rate) charged for Jumei loans?

- What are borrowers using the Jumei loans for?

- Describe the payment process for borrowers of Jumei loans.

- What is the term and size of the Jumei loans?

- Are the Jumei loans secured by borrower assets? Or are they unsecured?

- If borrowers default what is Jumei’s process to collect the debt?

- What is the Jumei loan delinquency rate, or loan default rate?

- Describe how the defaulted loans are paid for by Jumei?

- What are the key performance indicators for the online lending business, and what is the benefit to shareholders of Jumei?

- As Jumei has not disclosed a financial statement with balance sheet beyond December 31, 2016 – more than nine months ago – what is Jumei’s current net cash position? Total assets?

As of the latest financial statement of December 31, 2016, Jumei was reportedly a cash-rich company awash in liquidity. Jumei reported more than $331 million in cash plus $101 million in short-term investments, a total of $432 million in net liquid assets, nearly equal to the company’s stock market value of $445 million.

This cash appears to be burning a hole in management’s pockets. We are concerned about Jumei’s increasingly erratic and unpredictable spending of shareholders’ cash. This year shareholders have already been surprised and disappointed by a $44.8 million investment of our cash in Jiedian, a start up phone battery power bank, and another $14.3 million on a television drama in China, “Here to Heart.”

These investments stretch far outside Jumei’s core business of online retail of beauty products. On its corporate website Jumei promotes itself to U.S. investors as “China’s No. 1 online retailer of beauty products.” Online shopping in China is booming. It is difficult for shareholders to comprehend why Jumei is spending shareholders’ cash on a phone battery charger start up, a television show, and now, a provider of high-risk loans? Why not invest in the core business to sustain and grow Jumei’s stated top position in online retail for beauty products?

The online lending business in China is difficult. Many lenders have failed because of bad loans. What expertise does Jumei have to prevent an expensive failure for shareholders?

As a shareholder of Jumei we demand that management immediately submit a Form 6-K to the U.S. Securities and Exchange Commission (SEC), as done with the investments in Jiedian and the television drama, to disclose to all shareholders this sudden and unannounced change in business.

If this SEC filing is not done, or Jumei’s business plan is unavailable, insufficient, and does not win the trust and confidence of shareholders, Heng Ren would demand that Jumei’s Board close this expensive foray into a high-risk business like online lending before it wastes a significant amount of shareholders’ cash.

Sincerely,

Peter Halesworth
Managing Partner
Heng Ren Partners LLC
Boston, Massachusetts USA