China’s Shandong Ruyi group faces pressure over bond repayments


The Chinese conglomerate that owns luxury UK clothing maker Aquascutum and Savile Row tailor Gieves & Hawkes has come under increased pressure as a December 19 bond repayment draws near and rating agencies downgrade or withdraw their ratings.

Moody’s downgraded Shandong Ruyi’s corporate rating on Thursday deeper into speculative grade territory to Caa1 from B3.

That followed the withdrawal of S&P’s junk rating of the company last Friday, a move that was requested by Shandong Ruyi, which as recently as a year ago had been referred to as the “LVMH of China” after it became the country’s largest holding company for global luxury brands.

China is experiencing record levels of corporate defaults this year as the country’s economic growth rate grinds to a 30-year low and access to once-flush liquidity tightens.

The onshore default rate for the private sector has surged to a record 4.5 per cent at the end of October, up from 0.6 per cent in 2014, according to Fitch Ratings. Several offshore defaults are forcing some Chinese companies to divest from their foreign holdings.


The value of offshore US dollar-denominated bonds due this month

“Shandong Ruyi’s debt repayment risk is high, as it needs to address a large amount of upcoming debt maturities,” Moody’s said on Thursday.

Those maturities include $345m in offshore US dollar-denominated bonds due this month and Rmb4.4bn ($625m) of domestic debt maturing next year.

Shandong Ruyi is emblematic of the problems facing China’s heavily indebted corporate sector.

Over three years starting in 2016, the textile maker, based in a rural area of China’s north-eastern Shandong province, bought up more than 20 overseas assets ranging from wool spinners in Bulgaria to several well-known luxury brands in London and Paris.

The company took control over Swiss luxury shoes and leather company Bally, Paris-based Sandro, Maje & Claudie Pierlot and Cerruti 1881, as well as British luxury brands Aquascutum, TM Lewin and Gieves & Hawkes.

The series of acquisitions took it as far as Scotland’s Isle of Lewis, where it bought the Carloway Mill, one of the last producers of handwoven Harris tweed.

The spree meant the company accrued a heavy debt burden, doubling its total debt by the end of 2018 to Rmb28bn from Rmb15bn at the end of 2015, and raising questions over whether it could pay its offshore debt obligations.

In October, a state-owned enterprise based in Shandong Ruyi’s hometown of Jining purchased 26 per cent of the company in an attempt to strengthen its repayment abilities.

“In our view, Ruyi should be able to meet its . . . maturities in December 2019 with the recent backing of Jining City Urban Construction Investment,” S&P said on Friday after it withdrew its rating. “There may be some execution risks, especially given the short timeframe.”

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