Tycoon’s wild $4.2 billion gamble on ‘China’s LVMH’ crashes

LONDON – Six years ago, a little-known textile maker called Shandong Ruyi Group embarked on a frantic acquisition spree with the goal of becoming China’s version of luxury powerhouse LVMH.

Based in the home town of Confucius, chairman Qiu Yafu spent more than US$3 billion (S$4.2 billion) snapping up assets from the boulevards of Paris to the heart of London tailoring on Savile Row. He bought French fashion brands Sandro and Maje, as well as heritage British trench coat maker Aquascutum and the maker of Lycra stretchy fabrics.

Those big dreams have since unravelled, and Ruyi is at the centre of a messy unwinding involving some of the world’s largest financial institutions.

Ruyi is now losing control of key businesses and locked in disputes with creditors including Carlyle Group. In June, lenders took over United States-based Lycra Company, the spandex producer that Ruyi had bought from the billionaire Koch brothers. The next month, liquidators for another arm of Ruyi started inviting bids for Gieves & Hawkes, the bespoke tailor that has dressed every British monarch since George III. Court decisions in the coming months could decide the fate of other assets.

The rise of Ruyi came amid a US$400 billion outbound deal wave from China as the government sought to build up global champions. The authorities were encouraging traditional manufacturers to move up the value chain and help build a consumption-driven economy. Ruyi is now trying to offload assets in a difficult market, joining Chinese conglomerates like HNA Group and Anbang Insurance Group that have been reversing their global deal sprees.

“Most of the acquisitions made by Chinese companies overseas in recent years have not been successful,” said Mr Jeffrey Wang, co-head of the Shanghai office at investment banking firm BDA Partners. “The lengthy unwinding of Chinese companies is continuing for so long because they cannot afford to sell those assets at a big loss now.”

Mr Qiu, a 64-year-old former factory worker, has been holed up in a Hong Kong hotel room over the past few months negotiating with creditors, according to people with knowledge of the matter. He is trying to hold on to portions of his international empire, which also includes the Italian-inspired Cerruti 1881 label and British menswear retailer Kent & Curwen.

A Ruyi representative said that the companies it acquired were strategic investments and it worked hard to improve their performance, using local teams to manage the overseas operations.

“We were not out there making irrelevant acquisitions for the sake of winning trophy assets,” the Ruyi representative said. “It is just very unfortunate that the Covid-19 pandemic, coupled with the Sino-US tension and tighter credit environment, had hit us badly.”

At first, Ruyi’s strategy seemed like a sure winner. Increasingly affluent Chinese shoppers were flocking to European luxury goods, so Ruyi would snap up foreign brands that had neglected the Chinese market and bring them closer to where the demand was.

After buying a majority stake in French fashion group SMCP from KKR & Co in 2016, Ruyi helped it build up a network of more than 100 stores in the glittering malls of booming cities like Shanghai and Beijing.

It listed SMCP on the Paris bourse the next year, a success that gave Ruyi confidence to do more acquisitions.

In 2018, Mr Qiu publicly declared his goal of turning Ruyi into China’s LVMH, and the company started being floated as a likely buyer whenever a Western consumer business went on the block. It suddenly seemed a long way from Ruyi’s humble past exporting wool fabric to developing countries.

Executives waxed expansive about their international plans. But that ambition was not enough to revive brands whose star had already started to fade.

“Brands under the Shandong Ruyi umbrella have faced pressure from multiple angles in recent years, not only from the company’s financial struggles, but also due to deflated demand for formalwear,” said Ms Darcey Jupp, an analyst at London-based research firm GlobalData. “Traditional formalwear brands that failed to react and casualise their ranges have inevitably fallen behind.”

For Ruyi, creditors soon came calling. Standard Chartered Bank filed a winding-up petition in December 2020 against Trinity, a Hong Kong-listed Ruyi unit that owns several brands including Gieves & Hawkes.

Then last year, a trustee seized a large stake in SMCP on behalf of creditors – which include Carlyle, BlackRock and Anchorage Capital Group – after the Chinese group defaulted on some exchangeable bonds. The trustee has since been facing off with Ruyi in court cases in England, Luxembourg, France and Singapore.