Ruyi Technology, which is in a serious debt crisis, is facing debt pressure of 30.130 billion yuan on the one hand, and on the other hand, it involves many lawsuits, debt overdue, asset freezing and high consumption restrictions on executives.
Text | Road remote
Edit | Jin Wenfeng
On September 30, 2021, Northeast Securities Co., Ltd. issued the "Report on the Interim Trusteeship Management Affairs of Shandong Ruyi Technology Group Co., Ltd. On overdue Overseas EuroBonds". According to the report, according to the announcement issued by SMCP, a company listed on the Euronext Paris, on September 21, 2021, Europasan TopSoho, a Luxembourg subsidiary of Shandong Ruyi Technology Group Co., Ltd. (hereinafter referred to as "Ruyi Technology"), failed to redeem the €250 million exchangeable euro bonds due. If Ruyi Technology fails to properly handle the above-mentioned overdue eurobonds, it may eventually affect its control over SMCP, which in turn will have a significant negative impact on the company's financial operations, as the surviving bonds of Ruyi Technology "18 Ruyi 01" (143818. SH) trustee, Northeast Securities reminds securities investors to be aware of the relevant risks.
At this point, the debt crisis of Ruyi Technology has further spread to the Listed Subsidiary of France.
Affected by this, ruyi technology's 37% stake in SMCP company may be repaid, resulting in its loss of control over SMCP. As an important holding company in the consolidated statements, once Ruyi Technology loses control of SMCP, it will face further deteriorating operational difficulties.
A number of industry insiders said in an interview with the author that the debt crisis of the controlling shareholder Ruyi Technology has begun to have a negative impact on its A-share listed company, Shandong Ruyi Wool Textile and Garment Group (hereinafter referred to as "Ruyi Group", 002193.SZ).
As the controlling shareholder of Ruyi Group, Ruyi Technology is of great significance to Ruyi Group. Affected by the historical factors of the development of the enterprise, many of the businesses of Ruyi Group rely on Ruyi Technology to carry out, and the related party transactions between the two parties are frequent, and the debt default of Ruyi Technology not only leads to the freezing of all the equity held by Ruyi Group, but also adversely affects the business activities of Ruyi Group. Some investors have judged that the debt crisis of Ruyi Technology may eventually produce a serious crisis of trust, which will lead to investors losing confidence in Ruyi Group, which will affect its stock price.
Frequent overseas mergers and acquisitions, integration of clothing brand resources
"Shandong Ruyi" has a huge reputation and influence in China's textile industry and fashion industry, and this reputation is mainly obtained by Ruyi Technology and Ruyi Group. Among them, Ruyi Technology is the controlling shareholder of Ruyi Group.
Looking back at history, the "Ruyi" brand began in 1972 in Shandong Jining Wool Mill, the main business is the production of worsted wool. In 1993, Jining Wool Spinning Factory underwent the restructuring of state-owned enterprises and officially changed its name to "Shandong Ruyi Wool Spinning Group Corporation", which is an enterprise owned by the whole people. In 2000, the company was restructured again and became an investment holding group through debt-for-equity swaps. In December 2007, Shandong Jining Ruyi Wool Textile Co., Ltd., a core subsidiary of the Group engaged in worsted wool business, was successfully listed, and its stock was referred to as Shandong Ruyi, which was later renamed Ruyi Group in June 2017.
At the beginning of the listing, all the businesses of the group revolved around the listed company Ruyi Group, taking worsted wool as the starting point, and successfully developed a number of technologies and products to fill the domestic gap. In particular, its successful research and development of "Ruyi Spinning" technology has reached the international advanced level, with which the company has also become a leader in China's wool textile industry.
Technological breakthroughs, so that the confidence of the entire group company greatly increased, in 2010 the group put forward the "science and technology, high-end, branding, internationalization" development strategy. This strategy is of great significance to the entire group, of which "science and technology" and "high-end" refer to the wool worsted spinning and garment manufacturing, mainly listed company Ruyi Group; "branding" and "internationalization" are aimed at acquiring world-renowned clothing brands and expanding the international market, with the controlling shareholder Ruyi Technology as the mainstay.
Under the guidance of this strategy, the industrial layout with Ruyi Technology as the core began to be constructed. The specific approach is to carry out the merger and operation of internationally renowned clothing brands with Ruyi Technology as the main body, focusing on foreign markets; at the same time, the suit manufacturing business of its brand will be loaded into the listed company Ruyi Group, opening up the whole industrial chain from worsted woolen wool to fabric to clothing manufacturing, and making it the upstream production link of the whole group's internationalization.
In May 2010, Ruyi Technology officially opened the road of "branding and internationalization", and obtained 41.53% of the equity of Renown (Rena) Company, a well-known Japanese clothing brand, for 4 billion yen, becoming the company's largest shareholder. Founded in 1902, The company is a fashion group with a century-old history, including more than 30 international brands such as Arnold Palmer and Hiroko Koshino, and more than 2,000 clothing stores in Japan.
In September 2012, Ruyi Technology acquired a 70% stake in Yeon Seung Apparel Group, a well-known South Korean apparel company. According to the data, Yeon Seung Apparel is the second largest clothing group in South Korea, with brands such as Clride.n GGPX and TOP.
In February 2014, Ruyi Technology took a stake in the German men's wear production company Peine Gruppe, which owns brands such as Barutti and Materhand.
In April 2016, Ruyi Technology acquired a controlling stake in french fashion group SMCP for 1.3 billion euros. According to the data, SMCP Group is a famous Luxury Clothing Brand in France, which owns brands such as Sandro, Maje and Claudie Pierlot. In 2017, SMCP Group was listed on Euronext Paris.
In March 2017, Ruyi Technology acquired British trench coat brand Aquascutum for US$117 million. According to the data, Yag Shidan was founded in 1851, with a history of more than 160 years of development, is a famous British clothing brand.
In November 2017, Ruyi Technology held a stake in Hong Kong-listed menswear group Libang Holdings Limited for HK$2.22 billion. According to the data, Libang Group is a well-known men's wear brand operator in Greater China, which owns the British royal clothing custom brand Gieves & Hawkes, in addition to Kent & Curwen, Cerruti1881 and other well-known brands.
In November 2017, Ruyi Technology acquired a 54% stake in Bagir, an Israeli ready-to-wear design and manufacturing supplier, for $16.5 million, becoming the company's largest shareholder.
In February 2018, Ruyi Technology acquired a controlling stake in Swiss luxury goods company Bally International AG for $700 million.
In March 2019, Ruyi Technology acquired INVISTA, a U.S. polymer and fiber supplier, for US$1.6 billion. According to the data, INVISTA is the world's largest manufacturer and distributor of integrated fibers, fabrics and surface coatings, and its apparel and fabric products are widely used in ready-to-wear, underwear, swimwear, sportswear, occupational apparel and hygiene products, and has major brands such as LYCRA (LYCRA), COOLMAX, CORDURA, STAINMASTER and ANTRON.
Frequent overseas mergers and acquisitions have made Ruyi Technology develop rapidly, and it not only has four listed companies of Ruyi Group, Hong Kong Libang, Japan Rena, and French SMCP Group, but also has more than 40 well-known brands at home and abroad. More importantly, the success of the merger and acquisition has brought it a rich return, the company's revenue and net profit increased significantly during the merger and acquisition period, and more importantly, the "Ruyi" brand successfully went abroad and became a hot topic discussed in the international fashion industry and the capital industry, and its chairman Qiu Yafu also became a focus figure. Among them, bloomberg in the United States even referred to Ruyi Technology as the Chinese version of the "LVMH Group" ("LVMH" refers to the French Moët Hennessy-Louis Vuitton Group, the world's famous luxury group).
Source: Ruyi Technology Company Bond Annual Report
Yan Feng, investment manager of Hangzhou Xinsheng Investment Management Co., Ltd., told the author, "Ruyi Technology's overseas mergers and acquisitions are a great attempt by Chinese textile enterprises and a pioneering move for Chinese enterprises to get rid of cheap manufacturing and move towards high-end manufacturing." Subject to the inferior position of the supply side of the global industrial chain, China's clothing brands have almost no international influence, and can only be produced through OEM, and the profits are taken away by foreign high-end brands. Ruyi Technology's practice of obtaining well-known foreign brands through mergers and acquisitions and opening up the upstream and downstream industrial chains of the textile industry is worthy of recognition, after all, it is difficult to create a fashionable high-end garment brand without time and cultural accumulation. However, blindly going through the 'buy, buy, buy' approach to radical mergers and acquisitions is obviously not a good idea. How to integrate after mergers and acquisitions, how to give full play to the advantages of these brands, achieve coordinated development between enterprises, achieve performance growth, and give back to investors are more important things. At present, Ruyi Technology has obviously done very unsuccessfully. ”
Huge bond defaults, Ruyi Technology is deeply in a liquidity crisis
Frequent international mergers and acquisitions bring huge benefits while accumulating risks.
The cost of mergers and acquisitions exceeds 40 billion yuan, and although Ruyi Technology has many investors behind it, it is still unable to support such a large number of overseas mergers and acquisitions. Although its A-share listed subsidiary Ruyi Group has financing capabilities, it is also unable to support it due to its small market value and limited financing capabilities. In the end, the company could only raise funds by issuing corporate bonds, mortgages, guaranteed loans, etc., resulting in a surge in the company's debt ratio.
"Short-term loans and long-term investment are a major taboo in the process of enterprise investment, in this process, once the cash flow is tight, it will bring a huge crisis to the enterprise, ruyi technology is making this mistake." Yan Feng told the author.
On March 11, 2020, Dagong International Credit Rating Co., Ltd. downgraded the credit rating of Ruyi Technology entities, adjusted the rating outlook to negative, and the credit ratings of "17 Ruyi Technology MTN001", "18 Ruyi 01" and "19 Ruyi Technology MTN001" were adjusted to AA-, and the credit rating of "15 Ruyi Bonds" was maintained as AA+, and Ruyi Technology and its above-mentioned related debts were removed from the credit watch list.
Dagong International believes that the legal and financial risks faced by Ruyi Technology have risen, the short-term debt repayment pressure is very large, and the financing ability is limited, and the debt repayment ability is declining. At the same time, Jining Urban Construction Investment Co., Ltd. provides an unconditional and irrevocable joint and several liability guarantee for the "15 Ruyi Bonds", which still has a credit enhancement effect on the "15 Ruyi Bonds".
On March 16, 2020, the Shanghai Clearing House announced that it had not received interest payment funds from "19 Ruyi Technology MTN001" on the coupon payment date. At this point, ruyi technology liquidity is tight, and the problem of facing a debt crisis has completely surfaced.
According to the 2021 semi-annual report of Ruyi Technology Corporate Bonds, as of the end of the reporting period, the balance of interest-bearing liabilities of the issuer was 30.130 billion yuan, of which short-term interest-bearing liabilities were 19.107 billion yuan, and the balance of corporate credit bonds was 3.472 billion yuan, accounting for 11.52% of the balance of interest-bearing liabilities, and this part of the credit bonds faced repayment in the next year.
Image source: Ruyi Technology Company Debt 2021 Semi-annual Report
At present, Ruyi Technology has issued a total of three company bonds, namely '17 Ruyi Technology MTN001', '18 Ruyi 01' and '19 Ruyi Technology MTN001', with a total balance of 3.472 billion yuan, all of which have defaulted, and Ruyi Technology has been unable to pay.
In addition, Ruyi Technology has also been involved in many litigation matters, debt overdue, asset freezes, and executives are restricted from spending high.
In the face of a huge amount of defaulted bonds, Ruyi Technology can not reverse it on its own, and can only ask for help from the outside. According to Ruyi Technology's 2021 semi-annual report on corporate bonds, in order to solve the company's debt problem, the company has solved the debt problem through the Shandong Provincial Debt Committee to implement debt deferral, interest rate cuts, and set buffer periods for member units within 3 years. In addition, the company's interest-bearing debts and overseas debts outside Shandong Province have all experienced large-scale overdue debts, and the scale of the above-mentioned overdue debts continues to increase. The Company is actively discussing solutions with other creditors.
With the intensification of the debt crisis, Ruyi Technology's overseas assets have fallen into turmoil, which has caused the company's profitability to decline rapidly, especially in the past two years, the company's net profit attributable to the mother after deducting non-deductions was -1.123 billion yuan and -870 million yuan, respectively.
At the same time, the debt crisis that broke out in Ruyi Technology has had a serious negative impact on its subsidiaries. Among them, in 2019, the subsidiary Jining Ruyi Four Seasons Flower City Real Estate Co., Ltd. has been bankrupt and reorganized by the Rencheng District People's Court of Jining City due to a dispute over a financial loan contract. In April 2020, the Israeli men's ready-to-wear manufacturer Baggir Group declared bankruptcy due to the failure to receive the balance of the $10 million acquisition of Ruyi Technology plus the impact of the epidemic. On May 15, 2020, Rena Co., Ltd., a company listed on the Tokyo Stock Exchange, applied to the Tokyo District Court for bankruptcy protection because it did not receive a 5 billion yen receivable from Ruyi Technology, resulting in a break in the capital chain. In December 2020, Standard Chartered Bank submitted an application for liquidation of the company to the court due to the failure of Libang Group, a company listed on the Hong Kong Stock Exchange, to repay the US$150 million loan when due. On April 1, 2021, Libang Group has been suspended from trading in shares.
Related party transactions are frequent, and Ruyi Group cannot stand alone
At present, among the many subsidiaries of Ruyi Technology, Ruyi Group has suffered the least impact, but due to the frequent related party transactions with Ruyi Technology, it is difficult to get rid of the impact of the debt crisis of major shareholders. Judging from the company's 2020 annual report and 2021 semi-annual report data, the profitability of Ruyi Group is rapidly declining.
According to the semi-annual report of Ruyi Group in 2021, the company achieved revenue of 261 million yuan in the first half of this year, down 20.43% from the same period of the previous year; the net profit attributable to the shareholders of the listed company was -0.45 billion yuan, down 392.86% from the same period of the previous year; and the deducted non-net profit attributable to the shareholders of the listed company was -0.51 billion yuan, down 175.72% from the same period of the previous year.
Source: Ruyi Group Annual Report
Due to the historical factors in the development process of enterprises, Ruyi Technology has a close relationship with Ruyi Group, among which Ruyi Technology is an important raw material supplier and the largest customer of Ruyi Group.
According to ruyi group's 2020 annual report, the total sales amount of the company's top five customers accounted for 46.75% of the total sales, of which the first largest customer was the company's affiliated shareholders, accounting for 38.38%; the company's top five suppliers accounted for 30.85% of the total procurement of the year, of which related party procurement accounted for 19.49%.
It is precisely due to frequent related party transactions that the company and Ruyi Technology have formed a huge amount of accounts receivable of up to 645 million yuan, and at present, Ruyi Technology is in a debt crisis and liquidity is tight, and the accounts receivable are prone to credit impairment losses.
Image source: Ruyi Group's reply to the inquiry letter of the Shenzhen Stock Exchange's 2020 annual report
It is worth noting that the related party transactions between Ruyi Group and the controlling shareholder cannot be changed in a short period of time.
As for the reasons for the frequent related party transactions, Ruyi Group explained that in 2016, the company purchased clothing assets from Ruyi Technology through a non-public issuance of shares, which was injected into the unincorporated entity that the company had previously independently accounted for for by Ruyi Technology, and the external participation in the professional wear bidding was mainly based on Ruyi Technology. Due to the company's small registered capital and lack of bidding qualifications and the long service period for previous customers to win bids, after the assets were injected into the company, the company could not change the transaction entity, and it was still necessary for Ruyi Technology to perform the relevant contracts, so the company and Ruyi Technology had related party transactions. In addition, Ruyi Technology operates 32 internationally renowned clothing brands and has a sales network of more than 6,000 brands in 80 countries and regions around the world. In order to expand the scale of marketing, the company sells products with the help of the sales network of Ruyi Technology and its affiliates, so as to produce related party transactions in clothing sales with Ruyi Technology.
It is precisely because of the related party transactions that cannot be separated from the controlling shareholder that it is difficult for Ruyi Group to achieve the independence of independent operation. Judging from the data disclosed in its 2021 semi-annual report, the sharp decline in Ruyi Group's garment manufacturing business is the main reason for the decline in the company's performance.
Source: Ruyi Group 2021 semi-annual report
It is worth noting that ruyi group's garment manufacturing business is highly correlated with the related party transactions of the controlling shareholder, and it is precisely because of the problems in the operation of the controlling shareholder Ruyi Technology, which in turn affects the company's garment manufacturing business.
Faced with this unfavorable situation, Ruyi Group is seeking to change. The company said that since 2021, in order to reduce related party transactions, the company has changed to undertake the professional wear business by itself, and in addition to the contract being executed, it will no longer use Ruyi Technology as a platform to participate in the bidding for the professional wear business. However, due to the limitation of the scale of operation and the historical performance of the company's own undertaking of professional wear orders, the market and customers need time to verify and accept the replacement of the order subject, which has a certain impact on the company's professional wear order business during the transition period.
Some investors told the author that the Ruyi Technology debt crisis affected its normal operation, which had a negative impact on the garment manufacturing business of Ruyi Group, which would cause the decline in the performance of Ruyi Group, which as an investor can understand. However, it is worth noting that Ruyi Group itself is also facing a series of financial problems, among which the debt ratio is too high, especially the huge amount of short-term borrowings is worth vigilance.
As the investor said, the 2021 semi-annual report shows that ruyi group's current liabilities are as high as 1.917 billion yuan, of which short-term borrowings are 1.221 billion yuan and accounts payable are 289 million yuan, compared with huge current liabilities, the company only has 10.314 million yuan of monetary funds, which is prone to a cash flow shortage crisis.
In addition, the amount of the company's accounts receivable and inventory is also surging, and it is highly vulnerable to impairment losses in the current highly volatile operating situation.
Content source: Finance Qilu WeChat public number Financial magazine client regional channel