The difficulties of its Chinese shareholder weigh on the future of SMCP

Posted on Sep 15, 2021 at 6:28 PMUpdated on Sep 15, 2021, 6:34 PM

Only seven days left before SMCP changes shareholders? The French “accessible luxury” group, owner of the Sandro, Maje, and Claudie Pierlot brands, is 53% owned by European TopSoho, the Luxembourg subsidiary of Ruyi, the Chinese textile and clothing giant. But the situation could quickly change.

In 2018, European TopSoho issued 250 million euros of bonds exchangeable into SMCP securities. She has until September 21 to repay this debt. In the event of default, creditors will receive SMCP shares. A scenario that has a good chance of coming true.

Doubts about the holding’s ability to continue

KPMG, the auditor of European TopSoho, has already expressed serious doubts about the ability of the holding company to continue its activity. The latter may have guarantees from its parent company to repay this debt, Ruyi, very indebted, is facing great difficulties himself. Another of its subsidiaries, Trinity, owner of the Cerruti 1881 brands in particular, is in liquidation and its listing and suspended since April in Hong Kong. Renown, another of its Japanese subsidiaries, went bankrupt in 2020.

Already in January, European TopSoho was unable to pay interest to bondholders. Consequence: the creditors united in a trust, named Glas, have recovered 29% of the voting rights on SMCP securities without being owners – the transfer of ownership indeed requires other decisions.

In June, the two sides agreed, and the creditors obtained further guarantees. In the event of European TopSoho default, they will be able to claim 37% of SMCP’s capital and 16% more to reach 53% of the capital, if the 37% does not cover the amount due at the market price. Which is currently the case. Tuesday evening, 53% of the capital was worth 211 million euros.

A fall of 75%

Since its first listing at the end of 2017, the stock has plunged, falling from 21.65 to 5.30 euros. For analysts, a change of shareholder could boost the price, considered undervalued. The creditors are not intended to keep the securities. They could seek to sell their block to a third party, a private equity fund for example. They should not cede the securities on the market massively: it would be against their interests.

As the September 21 deadline approaches, shareholders, worried about SMCP’s future, have approached Fabrice Rémon, the founder of the consultancy firm Gouvernance en Action. On Monday, the latter wrote to Isabelle Guichot, the new CEO of SMCP and the AMF to ask them to “preserve the interest of all stakeholders”. These minorities fear that “Yafu Qiu, CEO of Ruyi and president of SMCP, does not seek to ensure the survival of his Chinese empire, by trying to shelter the French group, which is its most promising asset (in a foundation for example, Editor’s note) ”. This would deprive the creditors of the interest of having become shareholders.

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