For Shandong Ruyi Group (hereinafter referred to as “Shandong Ruyi”), the thunderstorm effect caused by debt problems is like a domino, and it is difficult to stop once it starts.
According to the French “Les Echos” news, Shandong Ruyi may lose the rights to SMCP, the French luxury group that owns brands such as Sandro, Maje and Claudie Pierlot. majority stake. Shandong Ruyi previously sold bonds worth 250 million euros through its wholly-owned Luxembourg company European Topsoho, which also holds 53% of SMCP Group.
Interface Fashion has previously reported that this is a common behavior of listed companies participating in market activities. Shandong Ruyi purchases overseas brands at low prices and then repackages them for listing through capital operations; the income earned in the capital market will be used in the next round of acquisitions.
Through this method, Shandong Ruyi can quickly raise a large amount of funds in a short period of time and complete the acquisition of multiple brands. Specific to SMCP Group, the operating method is that while Shandong Ruyi indirectly controls SMCP Group, it also uses its shares as collateral to issue secondary bonds to increase corporate cash flow. Around 2018, it was also the time for Shandong Ruyi to carry out large-scale acquisitions.
Affected by the recent debt crisis, Shandong Ruyi’s debt repayment ability has been significantly weakened. “Daily Business” pointed out that the bonds sold by the Luxembourg company will mature on September 21 this year. According to the contract, creditors can claim to recover 37% of the equity in the 250 million euro bond.
But the reality may be worse. Affected by the epidemic and Shandong Ruyi’s debt problems, SMCP Group’s stock price fell below 4 euros per share in the first half of this year, and its market value also plummeted. Although SMCP Group’s previous financial report showed that its sales in the first half of the year surged, the stock price eventually only rose to the level of 5.58 euros. The overall market value was 420 million euros, of which 53% of the shares could be converted into approximately 223 million euros, which was lower than the original 2.5 billion euros worth of bonds.
This triggers another clause in the contract. When 53% of SMCP Group’s market value is equivalent to less than 250 million euros, creditors can demand the remaining 16% of the equity held by the Luxembourg company to pay off the debt.
When asked how the Luxembourg company’s possible inability to repay debts would affect the company’s operations, SMCP Group said it would be left to its parent company, Shandong Ruyi, to handle it. The Luxembourg company is currently negotiating with creditors such as Anchorage and Carlyle.
However, it is worth noting that sometimes the proportion of shareholders’ shares is not linked to the actual administrative power of the company.
Losing all the equity of SMCP Group means that Shandong Ruyi can no longer receive dividends as a shareholder. However, information on the official website of SMCP Group shows that Shandong Ruyi still holds a voting ratio of 67.1 in the board of directors. Directors of Shandong Ruyi Chairman Qiu Yafu is the chairman of the board of directors. The “Daily Business News” also pointed out that some bond investors are worried that even if Shandong Ruyi’s weight in equity and voting rights is reduced, it will continue to control the operations of SMCP Group through Qiu Yafu.
SMCP Group is one of the few brands whose sales performance is still improving after Shandong Ruyi was affected by the epidemic and debt crisis. SMCP’s financial report shows that revenue in the first half of 2021 increased by 21.6% year-on-year to 453 million euros, and net profit increased from a loss of 88.5 million euros in the same period last year to a profit of 600,000 euros. Sales performance in the US and Chinese markets has basically returned to pre-epidemic levels.
Shandong Ruyi’s performance can be described as terrible. Financial reports show that as of the third quarter of 2019, Shandong Ruyi’s consolidated debt scale has reached 39.041 billion yuan, of which current liabilities exceed 21.9 billion. After Jining Urban Investment terminated the 3.5 billion yuan blood transfusion plan in June 2020, Shandong Ruyi’s predicament further intensified, and some equity funds were also frozen by the court.
In the recently disclosed 2021 semi-annual report, Shandong Ruyi’s operating income fell by 20.43% to 261 million yuan, and the parent’s net profit shifted from a profit of 15.282 million yuan in the same period of 2020 to a loss of 44.754 million yuan in 2021. Gieves & Hawkes, a high-end men’s clothing brand previously controlled indirectly through Trinity Group, is on the verge of bankruptcy, and RENOWN, a Japanese clothing company acquired ten years ago, has started bankruptcy liquidation procedures. </p
