(Yicai Global) Nov. 27 -- The founder and chief executive of a failed Chinese handset maker has denied running up losses of CNY10 billion (USD1.4 billion) on gambling trips to Saipan.

"I did go to Saipan, but didn't lose CNY10 billion," Gionee Communication Equipment's Liu Lirong told the state-backed Securities Times newspaper, adding that he had only run up "several billions of yuan" in gambling debts on the island, a US territory in the western Pacific Ocean.

Formed in 2002, Gionee was known as China's leading handset maker in pre-smartphone days, with a 5 percent market share. But it has struggled since due to fierce competition. Now the Shenzhen-based company is restructuring after defaulting on payments to suppliers last week amid debts of about CNY17 billion. Liu attributed the collapse to a break in its capital chain exposing longstanding deficits. Gross arrears hit CNY28.2 billion at the end of last year, against CNY20.1 billion of assets.

Liu is suspected of misappropriating some CNY6 billion of public funds, company insiders told Jiemian News last week. "I have no other income, so I will inevitably blur the boundary between private and public assets and borrow some cash from the company from time to time," he said in response to the charge.

A transaction of CNY1.43 billion was made between the company and Liu, the controlling shareholder, according to China Business News, a unit of Yicai Media Group. Many suspected the figure was too low and that Liu may have faked the diversion of funds as accounts receivable, as they reached CNY2.8 billion at the end of last year amid seemingly reasonable financial data. Liu did not comment on the report.

Saipan Debts

Liu confirmed he amassed gambling losses in Saipan in January last year without revealing how much his biggest bet was, or whether he used diverted funds to pay back what he owed.

Gionee's revenue reached over CNY27 billion with a net profit of CNY1.3 billion and a cash balance of CNY730 million (USD105 million) in 2016, according to the company's financials. Turnover was more than CNY15 billion in the first half of last year with a net income of CNY760 million and a cash balance of CNY1 billion, indicating a healthy financial status.

"Gionee's relations with suppliers have been tense since 2017, with some cutting shipments as part of efforts to get their money back after they heard about my gambling," Liu said in his interview with the Securities Times. "I've personally raised over CNY100 million and invested in the company in November last year, which didn't help."

O-film Tech, Gionee's largest supplier of camera modules, stopped supplying the firm last November, leading to a shutdown of smartphone production, Liu noted. The company had cash returns of nearly CNY2 billion in the domestic market in August last year before supply ceased, and they fell to less than CNY500 million in December and none in January this year. The company halted operations and more creditors came calling.

Gionee was in deficit with high costs, low output and negative cash flow as the sector moved away from feature phones to smartphones, he said, adding that average monthly losses were no less than CNY100 million from 2013 to 2015, but increased to at least CNY200 million in 2016 and 2017. The company's bank loans have also been rising, he added.

However, Liu did not comment on the contradiction between the company's claim of long-term deficits and the information on its financial statements.

Total Control

Liu enjoys absolute control of Gionee though 41.4 percent of the company's shares. Only Liu and He Dabing, the company's financial director, know the firm's true financial status. The two were listed as discredited by authorities last month.

Gionee's debt is around CNY17 billion, which includes nearly CNY10 billion for bank creditors, almost CNY5 billion for upstream suppliers, and about CNY2 billion for advertisers, Liu said. He had hoped to find a strategic investor, and had contacted six parties before failing in his search, Liu added.

All bank and supplier creditors agreed on the bankruptcy reorganization at a meeting on Oct. 23.

Liu mentioned a Saipan casino owned by Imperial Pacific International Holdings, whose VIP customers mainly come from Korea and China. One customer spent HKD2.2 billion (USD281.2 million), according to the firm's financial report last year, accounting for 16.5 percent of the casino's annual revenue for that year.

The casino's largest debtor owed HKD1.1 billion, and its top 10 debtors owed a total HKD1.9 billion as of the end of 2017. Accounts overdue for more than 6 months exceeded HKD7 billion. Liu did not mention whether he was included in the above list, but expressed deep regret over his gambling. 

Editor: William Clegg