Shandong Ruyi, 'China's LVMH', is downgraded following spending spree

Fashion giant Shandong Ruyi, often considered the Chinese LVMH, has been downgraded by financial specialists Moody’s following a flurry of acquisitions.

Shandong Ruyi is majority shareholder or parent company to host of global brands, including Bally, Aquascutum, Gieves & Hawkes and French Group SMCP whose fashion brands include Sandro, Maje and Claudie Pierlot.

“The downgrade of the ratings reflect our expectation that Shandong Ruyi’s liquidity will remain weak and debt leverage will stay elevated,” says Chenyi Lu, a Moody’s Vice President and Senior Credit Officer in statement.

“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,” adds Lu.

Analysts say the debt problem is directly linked to the purchase of luxury brands for a total cost of over 40 billion yuan (about 5.1 billion euros) in the last ten years. In the past three years Ruyi spent 4 billion dollars on overseas acquisitions.

According to the Business of Fashion, “the group owns a fully integrated value chain with operations spanning across raw materials cultivation, textiles processing, and design and sale of brands and apparel. However, there are limitations when it comes to potential synergies with the group’s recent luxury acquisitions. It is unclear how many fabrics from its own mills in Shandong are a good fit for luxury brands with a distinctly British or Swiss heritage.”

Moody’s assessment notes Shandong Ruyi’s textile manufacturing businesses, which represented 22 percent of total revenues in 2018, show environment risk exposures that are partially offset by the use of more advanced equipment.

Photo: Shandong Ruyi, Official Website