Reporter | Chen Qirui
Edit | Lou Shuqin
Affected by the debt problem, European Topsoho Sàrl, a Luxembourg investment firm indirectly controlled by Shandong Ruyi Group, failed to redeem 250 million euros of bonds as agreed, and the latter's 53% stake in the French SMCP Group may be handed over to pay off the debt. At present, SMCP Group owns brands such as Sandro, Maje and Claudie Pierlot.
SmCP Confirmed on 23 September that Luxembourg was unable to repay its debts by 21 September, which was the closing date, but was still able to take remedial measures by 30 September. However, Shandong Ruyi Group confirmed its debt default on October 5, and the Luxembourg company will transfer the equity of SMCP Group. Shandong Ruyi Group officially lost SMCP Group.
Previously, Interface Fashion pointed out that the proportion of shareholders in the shares and the actual administrative power of the company are not absolutely linked. Qiu Yafu, chairman of Shandong Ruyi Group, is still the chairman of the board of directors of SMCP Group, and in this position, he can continue to control the operation of SMCP Group through specific means. But creditors are concerned, according to the French newspaper Les Echos. The senior management of SMCP Group may be reshuffled after the change of equity.
Shandong Ruyi Group has recently been mired in serious operational problems. According to the 2021 semi-annual report, the operating income of Shandong Ruyi Group fell by 20.43% to 261 million yuan, and the net profit of the mother changed from a profit of 15.282 million yuan in the same period of 2020 to a loss of 44.754 million yuan in 2021.
Like most Chinese fashion groups that acquired overseas brands but ended up selling off, the reason for Shandong Ruyi Group's failure was still its lack of ability to refine the operation of the brand. When these large groups completed the transaction, they all vowed to vigorously explore the Chinese market and rely on high consumption power to achieve brand development and revitalization.
The operating logic of overseas brands is different from that of Chinese brands, and educating consumers in an increasingly competitive market is a delicate and long-term task, requiring garment groups to have rich retail experience and abundant financial support. However, under the impact of the epidemic, the revenue of Shandong Ruyi Group has also been impacted, after the high-end men's wear brand Gieves & Hawkes indirectly controlled by Libang Group was on the verge of bankruptcy, and renown, a Japanese clothing company acquired a decade ago, has started bankruptcy liquidation procedures.
The side effects of large-scale acquisitions through leverage are also beginning to appear. Previously, Shandong Ruyi purchased overseas brands at low prices, and then repackaged them for listing through capital operations; the income obtained in the capital market will be used in the next round of acquisitions. In this way, Shandong Ruyi was able to quickly raise a large amount of money in a short period of time, and then complete the acquisition of multiple brands.
According to the financial report, the consolidated debt scale of Shandong Ruyi Group as of the third quarter of 2019 has reached 39.041 billion yuan, of which the liquid liabilities exceed 21.9 billion. After Jining Chengtou terminated the 3.5 billion yuan blood transfusion plan in June 2020, shandong Ruyi's plight was further aggravated, and some equity funds were also frozen by the court.
Out of concern about the prospects of Shandong Ruyi Group, some investors believe that SMCP Group's separation from the control of Shandong Ruyi Group may reduce uncertainty in future development. After Shandong Ruyi Group confirmed the news of the equity transfer, SMCP Group's share price rose as high as 12% on October 5, closing up 6.7% to 7.28 euros per share, a four-month high.
According to the previous contract, after the secondary bonds issued by Shandong Ruyi Group through the Luxembourg company matured on September 21 this year, creditors could claim to recover 37% of the 250 million euro bonds. But when the market capitalization of the SMCP Group as collateral is less than 250 million euros, creditors are able to claim the remaining 16% of the equity held by the Luxembourg company to pay off the debt.
According to Reuters, Glas SAS, the governing body entrusted by creditors, said that creditors can currently exercise slightly less than 29% of shareholder voting rights within the SMCP group. According to the regulations, if a shareholder holds more than 30% of the shares, it must make an overall takeover offer.
But at the same time, Shandong Ruyi also filed a lawsuit in the British court with the help of the Luxembourg company, accusing Glas SAS of trying to illegally force SMCP Group to transfer its equity or joint shareholders to achieve an overall acquisition at a price below the market valuation.
Glas SAS responded that the creditors it represented had no intention of forming a consortium to buy smcp group. These creditors include Carlyle Group, Anchorage Capital, Blackrock and Boussard & Gavaudan. They may package their stakes and sell them to a single buyer, with private equity funds and fashion groups from the United States likely to take over.
The formal share transfer agenda will begin on October 19, but given the legal and financial issues involved, the process is likely to take a longer period of time.
SMCP Group said in a press release that the debt problem of the Luxembourg company will not affect the group's financial position and operating model, with its revenue in the first half of 2021 increasing by 21.6% year-on-year to 453 million euros, and its net profit increasing from a loss of 88.5 million euros in the same period last year to a profit of 600,000 euros, of which sales performance in the UNITED And China markets basically returned to pre-pandemic levels.