Shandong Ruyi Technology Group Co Ltd Manufacturing 1Q19 Credit report 19 June 2019 China SHANDONG RUYI TECHNOLOGY GROUP CAPITAL STRUCTURE (CNYm) Amount Amount Pro forma Pro forma Issuance Pro forma Instrument Issuers Coupon Maturity outstanding as outstanding as amount amount date leverage at 31-Dec-18 at 31-Mar-19 (CNYm) (USDm) Short-term secured loans <1 year 1,860 NA(1) NA(1) NA(1) Long-term secured loans >1 year 2,505 NA(1) NA(1) NA(1) Finance lease >1 year 1,400 1,400 1,400 203 Offshore secured bonds(2) 18-May-16 2022-23 2,167 2,167 773 112 Total secured debt 7,932 3,566 2,173 314 0.9x Other short-term loans 5,960 7,202 7,202 1,042 Other long-term loans(2) 2,658 4,612 7,356 1,065 Onshore bonds 2015-19 5.5-7.9% 2019-23 5,703 6,203 6,203 898 Offshore bonds 2016-18 6.95-7.5% 2019-22 6,419 6,419 6,419 929 Total debt 28,672 28,002 29,353 4,248 11.6x Cash and cash equivalent(3) 8,953 8,359 9,710 1,405 External guarantee 2,011 2,011 2,011 Credit facilities (mostly uncommitted)(4) 3,139 3,139 3,139 Net debt 19,719 19,643 19,643 2,843 7.8x LTM adj. EBITDA(4) 2,531 Source: Debtwire, company filings 1) No breakdown of loan types for 1Q19; 2) 51.8%-owned subsidiary, SMCP, announced early redemption of EUR notes due-2023 on 10 May, which are to be refinanced by new EUR 265m amortizing term loan and a EUR 200m revolving credit facilities, with five-year maturity. SMCP also repaid EUR 110m of credit facilities previously drawn with new loans; 3) pro forma cash is cash as of 1Q19 after adjusting for bond redeemed and new debt issued between April and date of this report date; 4) no disclosure on whether credit facilities are committed or not. However, most of credit facilities are provided by onshore banks, which are uncommitted. OVERVIEW improving a tad, was still 7.7x as of end ISSUER SUMMARY March. That is up from 3.8x in 2012, the Shandong Ruyi Technology Group, a year before the company began raising Country China Shandong-based textile manufacturer and significant amounts of debt to fund diverse Sector Manufacturing (other) global fashion brands owner, showed in its overseas acquisitions, including cotton latest results that 1Q19 revenue and farms in Australia, fashion brands in France Credit rating B/B2/NA EBITDA improved largely as the result of its and Japan and a power plant in Pakistan. Total assets (31-Mar-19) CNY 67.9bn 51.8%-owned French luxury fashion brand manager and retailer SMCP. However, a Prompted by frustration over Ruyi’s Total debt (31-Mar-19) CNY 27.7bn series of debt-funded acquisition - including apparent lack of a refinancing plan, holders SMCP in 2016 - combined with the poor of the USD 345m, 7.5% due-2019s floated MAJOR EVENTS performance from its legacy textile the idea of an exchange offer early this Next earnings release: Aug-19 business has left Ruyi with high leverage year, according to a 15 March Debtwire and weak liquidity ahead of the December article. Instead, the company eventually Next significant maturity: Dec-19 maturity of USD 345m bonds. touted other refinancing options, including Source: Debtwire, company financials spinning off self-used commercial and In total, Ruyi reported CNY 12.3bn debt industrial properties into a Singapore due within one year of 31 March 2018 - REIT, an ambitious deal considering that Weighing on the private company’s credit including the USD bonds and CNY 2.7bn the underlying assets are in third-tier profile is its corporate governance domestic notes maturing or puttable by Chinese cities, as per a 9 May Debtwire stumbles. As Debtwire reported in mid- November - against just CNY 8.36bn cash, article. (For more details on Ruyi’s potential 2017, the state backed shareholder Ruyi including restricted. Its net leverage, while refinancing plans, see page 3). disclosed in its bond offering circulars had actually transferred the stake to another state entity, a foible management later FINANCIAL SUMMARY (USDm) blamed on the shareholder’s lack of Period-end 31-Dec 31-Dec 31-Dec 31-Dec 31-Mar 31-Mar 31-Mar YoY % ∆ disclosures. (For more details on Ruyi’s 2015 2016 2017 2018 TTM to Mar 1Q18 1Q19 corporate governance issues, see page 4.) Revenue 22,770 29,087 35,738 34,282 37,306 8,807 11,831 34.3% Adj. EBITDA 1,702 2,487 3,782 2,375 2,531 737 894 21.2% ASIA CREDIT RESEARCH EBITDA margin 7.5% 8.6% 10.6% 6.9% 6.8% 8.4% 7.6% Operating cash flow 959 2,498 3,256 1,895 1,871 144 120 -16.6% Capex (1,369) (2,194) (2,104) (2,963) (2,936) (82) (55) -33.1% Michelle Lee, Research Analyst Free cash flow (410) 303 1,152 (1,069) (1,066) 62 65 5.3% +852 2158 9689 Cash and cash equivalents 8,396 8,583 9,811 8,953 8,359 9,758 8,359 -14.3% [email protected] Total debt 15,372 24,011 25,516 28,008 27,747 24,717 27,747 12.3% Total debt/adj. EBITDA 9.0x 9.7x 6.7x 11.8x 11.0x - - Ryan Patwell, Head of Research, Debtwire Asia Net debt/adj. EBITDA 4.1x 6.2x 4.2x 8.0x 7.7x - - +852 2158 9777 Interest expense, gross (630) (1,216) (1,340) (1,508) (1,603) (278) (374) 34.4% [email protected] Adj EBITDA/interest expense 2.7x 2.0x 2.8x 1.6x 1.6x 2.7x 2.4x Source: Debtwire, company financials Credit report DW-APAC 19-June-19 Page 1 Shandong Ruyi Technology Group Co Ltd Manufacturing 1Q19 Credit report 19 June 2019 China BUSINESS DESCRIPTION Shandong Ruyi Technology Group transformed accessories. Claudie Pierlot focuses in tradi- “Other” segment: Made up 8.7% of the group’s from a state-owned enterprise to a privately held tional style women and girls' clothes, bags, gross profits. This segment includes cotton plant company in 2001. Shandong-based Ruyi operates shoes and accessories. and electricity and steam generation. Ruyi owns a 93,483 hectares cotton farm in Australia a full textile and apparel products value chain. Its ● Renown (3606 TYO): Ruyi acquired control in upstream capacity includes raw materials sourc- (Cubbie Station), which mainly sells locally. Ruyi 2010 and owned 53% of the Japanese apparel also owns a 50% stake in a power plant in Paki- ing, wool and cotton production, and ownership manufactures and purveyor as of end-2018. of sheep farms and cotton fields in Australia. stan with 660MWx2 capacity in a joint venture Renown’s gross profit was JPY 29bn (CNY with China Huaneng Group. According to Midstream includes wool- and cotton-based fab- 1.85bn) during FY19 ended- February, which rics manufacturing, apparel design and produc- Debtwire 9 May report, the plant generated equates to 20.7% of Ruyi’s 2018 gross profit. CNY 700m profits last year. tion. Downstream includes apparel retailers, in Renown operates 29 brands including Durban, addition to selling through distributors. Ruyi also Aquascutum and Simple Life. D'urban focuses Shareholding: Beijing Ruyi Fashion Investment engages in textile raw materials trading. Main in men's business and leisure wear. Aquascu- Holding is Ruyi’s largest controlling shareholder segments include apparel, yarn and fabrics, tex- tum is a British classic brand known for women with a 53.49% stake. This gives the group’s ulti- tile raw material trading, as detailed below: waterproof trench coats, also designs and sells mate controller and chairman Qiu Yafu a look- Apparel segment: Made up 78.7% of the group’s men and women’s luxury clothes and accesso- through stake of 27.3%. (See 28 May 2018 Share- CNY 8.94bn total gross profit in 2018, with a rela- ries. Simple Life offers men and women's natu- holder Profile on Qiu Yafu for detailed back- tively juicy gross profit margin of 57.3%. The seg- ral and simple modern casual clothes. ground). As of 12 March, Beijing Ruyi’s 51.4% ment includes Ruyi’s self-produced high-end suits had been pledged to back borrowings from Chi- Yarn & fabrics segment: Made up 8.7% of the na Cinda Asset Management, Shandong Interna- and brands held through acquired stakes in brand group’s CNY 8.94bn total gross profits in 2018, operators, which contributed more than 90% of the tional Trust Investment and Bank of China, ac- with a GPM of 10.6%. Cotton yard and wool, cording to the 12 March 2019 onshore bond OC. segment’s revenues, according to the April 2019 which contributed 46.6% and 37.5% of the seg- onshore bond OC. Ruyi owns about 40 brands. Its ment’s 1Q18(1) revenue respectively in 2018 were Yinchuan Financial Holding, which is majority major consolidated brand operators include: the main products. Other products include Denim owned by Yinchuan State-owned Assets Super- ● SMCP (SMCP EPA): Ruyi acquired control of (7.2% of the segment’s revenue) and spandex vision and Administration Commission (SASAC), (2.8% of segment’s revenue). 45.9% of yarn and holds a 26% stake in Ruyi. the French subsidiary in 2016 and owned a (1) 51.8% stake as of end-2018. Its gross profit fabric production are sold overseas as of 1Q18 .