Fashion giant Shandong Ruyi, dubbed ‘China’s LVMH’, downgraded by Moody’s after spending spree leaves it hard-pressed to repay debts
- The credit ratings agency downgraded Ruyi to B3 from B2, and put it under review for further downgrade
- Ruyi’s ability to service a slew of debt maturities in the next 12-18 months, and its ‘limited progress’ on its refinancing plans are cause for concern, says Moody’s
Chinese clothing giant Shandong Ruyi Technology Group has been downgraded by Moody’s because it will struggle to meet upcoming debt repayments, according to a report issued by the rating agency on Thursday.
Shandong Ruyi has been on an expensive global spending spree in recent years. It took over French fashion group SMCP – which manages affordable luxury brands including Sandro, Maje, and Claudie Pierlot – in 2016. It announced another deal to acquire Italian fashion giant Bally International last year, and has since been dubbed “China’s LVMH” by state media, a reference to the French fashion powerhouse.
A research report issued by Moody’s said Ruyi will need to address a large amount of maturing debt in the next 12 to 18 months, at a time when it is weighed down by stretched liquidity conditions.
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The company faces domestic bonds totaling 2.2 billion yuan (US$309 million) maturing in October and November, in addition to offshore bonds of US$345 million due in December, and another 2.5 billion yuan worth of domestic bonds maturing next year, it said.
Moody’s Investors Service has downgraded Shandong Ruyi Technology Group’s corporate family rating to B3 from B2. B3 is five notches below investment grade.
At the same time, Moody’s has placed the ratings on review for further downgrade.
It also downgraded the senior unsecured notes issued by Prime Bloom Holdings and guaranteed by Shandong Ruyi to Caa1 from B3.
Prime Bloom is a wholly-owned subsidiary of Shandong Ruyi that issues bonds.
“The downgrade of the ratings reflects our expectation that Shandong Ruyi’s liquidity will remain weak and debt leverage will stay elevated,” said Chenyi Lu, a Moody’s senior credit officer.
“The ratings remain on review for further downgrade because of our increased concern over Shandong Ruyi’s ability to service its large onshore and offshore debt maturities over the next 12-18 months, given the company’s limited progress on its refinancing plans.”
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The report went on to say the company’s liquidity risk was higher than Moody’s had expected.
“At the end of June 2019, Shandong Ruyi’s cash, including pledged deposits of 8.9 billion yuan and Moody’s forecast of cash flow from operations of 2.3 billion yuan for the next 12 months, was insufficient to cover its maturing debt of 12.3 billion yuan, bills payable of 4.8 billion yuan, and
estimated maintenance capital spending of 100 million yuan over the same period,”it said.
