According to sources, Chinese clothing conglomerate Shandong Ruyi is encountering obstacles in securing financing for its $600 million acquisition of Swiss luxury brand Bally. Despite the deal being announced in February 2018, it has yet to be finalized due to ongoing financial issues. The recent outbreak of the coronavirus in China has further exacerbated Shandong Ruyi’s financing woes.

Shandong Ruyi, which is based in eastern China, has been striving to establish a global fashion empire that can rival luxury giant LVMH. In pursuit of this goal, the conglomerate has invested billions of dollars in acquiring European luxury brands and Asian labels. However, the group has been facing increasing pressure to refinance the debt it incurred from these acquisitions. In December 2019, it nearly missed a deadline to repay distressed offshore bonds.

Since the coronavirus outbreak began in January, Shandong Ruyi’s financing troubles have worsened. The epidemic has resulted in widespread business closures and reduced operating hours, causing significant disruptions for the company. SMCP, which owns fashion brands such as Maje, Sandro, and Claudie Pierlot, reported a significant impact on its sales and profitability in China due to the outbreak.

In addition to financial challenges, Shandong Ruyi is also dealing with legal issues concerning unpaid bills and a failure to settle payment for a controlling stake in Israeli menswear group Bagir. Although the company agreed to pay $16.5 million for the stake, it is still short by over $10 million. Negotiations are currently underway with Bagir to resolve the payment problem. Portuguese supplier Calvelex has also filed a lawsuit against Shandong Ruyi in Hong Kong, claiming the conglomerate owes it approximately 182,000 euros.

These difficulties have prompted credit-rating firm Moody’s to downgrade Shandong Ruyi’s corporate family rating and express concerns about its refinancing risk. The conglomerate’s upcoming maturities for its debt have raised red flags for the rating agency.

Despite the setbacks, a spokesperson from Bally has reassured that the luxury brand’s financial position remains strong, thanks to its support from sole shareholder JAB Holding. Bally has enjoyed a longstanding and trusting relationship with JAB and is fortunate to have their support during these uncertain times.

The ongoing financing struggles faced by Shandong Ruyi shed light on the challenges encountered by Chinese conglomerates in their global expansion efforts. The coronavirus outbreak has further amplified these challenges, compounding the existing financial pressures. Only time will tell how Shandong Ruyi will navigate these obstacles and whether it will successfully complete its acquisition of Bally.

Useful links:
https://www.reuters.com/article/ruyi-bally-bonds/investors-face-tough-time-with-ruyi-bid-to-acquire-bally-loses-steam-idUSL8N1T81P1
https://www.businessoffashion.com/articles/news-analysis/chinese-fashion-powerhouse-shandong-ruyi-acquiring-swiss-brand-bally