Shandong Ruyi confirmed that it will withdraw from the French fashion group SMCP, who will become the new owner?

China's Shandong Ruyi Group confirmed on Tuesday that its Luxembourg-based indirect holding company, European Topsoho Sàrl ("Topsoho"), had failed to redeem the €250 million bonds convertible into SMCP Group shares at maturity and that Shandong Ruyi's controlling stake in SMCP Group was about to change. SMCP is the parent company of French fashion brands such as Sandro, Maje, Claudie Pierlot and De Fursac.

Affected by this news, after the opening of the market on Tuesday, October 5, the shares of SMCP Group, which is listed on the Paris Stock Exchange, rose as much as 12%, the highest increase in nearly four months, and rose 6.7% at 7.28 euros per share by the close of the day. After the opening of the market on Wednesday, the stock price fell again, and as of the publication of the article, the stock price is 6.97 euros, and the current market value is 519 million euros.

Jefferies Investments analysts said: "The troubled Shandong Ruyi is about to exit, eliminating the headwinds in smCP's stock price since its listing, so we have upgraded the rating of SMCP Group shares to 'buy'. ”

Topsoho, a company owned by Shandong Ruyi Group, holds a 53% stake in SMCP Group and issued three-year convertible bonds with a total value of €250 million in September 2018. When the debt matured on September 21, 2021, Topsoho failed to repay the debt on time. Under the agreement, if Topsoho is unable to take remedial measures to pay off its debt by September 30, 2021, this debt will be converted into at least 28 million shares (approximately 37% of the SMCP Group) to creditors, and if the market value of the above 37% equity is less than 250 million euros, the creditors have the right to demand that Topsoho use all of its equity to cover the debt.

Based on SMCP's current market capitalization of €519 million, the 37% stake has a market capitalisation of only €192 million, which means that creditors may acquire all 53% of Shandong Ruyi's stake through Topsoho. But according to sources, creditors may soon seek to sell the stakes.

Creditors of the debt include private equity firm Anchorage Capital, Carlyle Group, France's Boussard & Gavaudan and U.S. asset manager Blackrock.

Glas SAS, which claims to be the trustee of Topsoho's creditors, revealed that it currently has less than 29% of the voting rights of SMCP Group shareholders, and expressed its reluctance to acquire SMCP Group in the form of a consortium on behalf of creditors, but the market stipulates that once a shareholder's shareholding exceeds 30%, it must issue an overall takeover offer, so creditors are eager to seek to sell these shares.

"Essentially, smcp groups are on sale," jefferies investment analysts added, adding that the change of ownership could be a lengthy process and that SMCP groups could attract interest from private equity funds and U.S. light luxury group.

Founded in Paris in 1984, SMCP comprises three fashion brands, Sandro, Maje and Claudie Pierlot, and in June 2019 acquired the luxury menswear brand De Fursac. In 2016, Shandong Ruyi Group acquired most of its 70% stake from KKR, the former majority shareholder of SMCP, with an overall transaction amount of around 1.3 billion euros. In 2017, SMCP was successfully listed on euronext Paris, maintaining its controlling shareholder status. (For details, see The Magnificent Chronicles Historical Report: ;)

SMCP Group's performance has gradually returned to pre-COVID-19 levels recently. For the first half of fiscal year 2021 ended June 30, SMCP Group sales increased by 21.6% year-on-year to EUR 453 million and net profit of EUR 600,000, compared to a loss of EUR 88.5 million in the same period last year. (For details, see the historical report of "Magnificent Chronicles":)

Since 2015, Ruyi Group, which started its career in the textile industry, has begun to acquire overseas brands, including french fashion group SMCP, British high-end trench coat brand Aquascutum, and American polymer and fiber supplier INVISTA. But the acquisition also brought a series of financial pressures, Shandong Ruyi Group's net loss in the first half of fiscal 2021 widened to 44.75 million yuan, and its British high-end menswear brand Gieves & Hawkes recently faced bankruptcy liquidation due to failure to repay debts. (For details, see the historical report of "Magnificent Chronicles":)