Jun 19, 2020 02:47 PM

Debt Woes Rise for China LVMH Wannabe as State Support Wanes

Employees make suits at a factory operated by Shandong Ruyi in Jining, East China’s Shandong province, in May 2016.  Photo: Bloomberg
Employees make suits at a factory operated by Shandong Ruyi in Jining, East China’s Shandong province, in May 2016. Photo: Bloomberg

(Bloomberg) — A troubled private firm that aspired to be China’s answer to LVMH is facing growing concern over its ability to repay debt.

Shangdong Ruyi Technology Group Co. Ltd., which has been battling liquidity issues stemming from a $4 billion global acquisition spree, has twice delayed a domestic bond repayment since March. Plans by a local government financing vehicle to inject capital through acquiring a stake have fallen apart. By the end of this year, Ruyi is scheduled to repay 2.9 billion yuan ($409.1 million) of domestic bonds, according to data compiled by Bloomberg.

What’s happening: Shandong Ruyi secured support from bondholders last week to extend coupon payment on its three-year 1 billion yuan ($140 million) bond again by six months to Dec. 15. The company first asked creditors in March to delay the interest payment until June 15.

The latest debt reprieve came shortly after a withdrawal by Jining City Urban Construction Investment Co. Ltd., a local government financing vehicle, from an October pact to become the private firm’s second-largest shareholder.

From the same city in the eastern Shandong province where Ruyi is based, the LGFV said it will retain just a 0.01% stake in the apparel maker, instead of the 26% that it had originally agreed to purchase.

In a sign of its own financial constraints, Jining City Urban Construction said it also has accepted a 25.99% stake in Shandong Ruyi from the latter’s parent as collateral for its guarantee on a 1.9 billion yuan bond from the clothing firm. The stake is equivalent to 1.05 billion yuan, according to the LGFV.

As of Thursday, Shandong Ruyi’s dollar bond due 2022 had slumped 37% to 30.5 cents on the dollar since March 17 when the company missed the coupon payment on the local bond, according to prices compiled by Bloomberg.

Why does it matter: Despite the successful repayment of a $345 million dollar bond by its December deadline, China’s LVMH wannabe has to look for fresh sources of funding now that it has lost its state-backed savior.

Jining City Urban Construction’s abrupt exit sends an ominous signal to China’s many ailing private firms as it points to the fast dwindling capacity of the once powerful state sector to bail them out. It also bodes ill for investors as waning state support means they will have to accept more compromises imposed by borrowers as an alternative to outright defaults.

Shandong Ruyi had 69.2 billion yuan in assets and 38.5 billion yuan in liabilities at the end of the first half of last year, according to its latest financial statement. The company said that due to a delay caused by the virus outbreak, it expects to release its 2019 and first-quarter financial results by the end of this month.

Calls to the company’s securities information disclosure office went unanswered.

What’s the company: Established in 1972, Shandong Ruyi made $4 billion worth of overseas acquisitions in three years starting from 2015, including U.K. trench coat maker Aquascutum and a French fashion retailer whose labels include Sandro, Maje and Claudie Pierlot. Once one of China’s most acquisitive private firms, it also owns Hong Kong-listed Trinity Ltd., which controls British bespoke tailor Gieves & Hawkes.

The company’s stated ambition was to become the LVMH of China and it planned to inject new, trendy elements into underperforming brands and boost e-commerce sales, chairman Qiu Yafu said in an interview in 2018. The firm has nearly 20,000 employees in China.

What do ratings agencies say: Moody’s Investors Service downgraded Shandong Ruyi further into the junk zone to Caa3 in March, citing the company’s tightening liquidity and elevated refinancing risk. The rating firm also noted the borrower’s sizable upcoming debt maturities over the next 12 to 18 months.

S&P Global Ratings withdrew its CCC+ long-term issuer rating on Shandong Ruyi at the latter’s request in December. The credit outlook was negative at the time of withdrawal.

What are traders watching next: Without the LGFV as its financial backer, investors are closely watching if Shandong Ruyi can make the coupon payment on a $300 million dollar bond next month.

By the end of this year, Ruyi is scheduled to repay 2.9 billion yuan of domestic bonds, according to data compiled by Bloomberg. It has a total of $2.3 billion worth of local and offshore bonds outstanding, the data show.

Contact editor Yang Ge (

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