Don Weinland in Beijing
Shandong Ruyi is facing serious disruption to its access to cotton supplies after the company, once hailed as the “LVMH of China”, was placed on an industry blacklist that will halt much of its trading in the commodity with major global groups.
Details from a recent arbitration case with a Bangladeshi group, in which Shandong Ruyi was ordered to pay compensation but has not, have also shone a spotlight on the extent of the Chinese company’s difficulties in paying off debts.
The Liverpool-based International Cotton Association added Shandong Ruyi this month to its list of companies that have failed to pay arbitration awards connected to corporate disputes.
That will bar association members, which include many of the cotton industry’s largest traders such as Cargill and Louis Dreyfus, from trading with the Chinese textile group.
Shandong Ruyi is a major purchaser of cotton due to the clutch of global brands it bought in a $4bn shopping spree in recent years, including Paris-based SMCP, UK clothing maker Aquascutum and Savile Row tailor Gieves & Hawkes.
The move has the potential to freeze Shandong Ruyi’s access to purchasing cotton from major suppliers and squeeze production at its brands, according to several people familiar with the cotton industry. An ICA spokesperson said the association could discipline members who continue to trade with companies on the blacklist.
Many Chinese groups that made costly overseas acquisitions in recent years have struggled to manage, and pay for, their new global empires.
Over a period of three years Shandong Ruyi agreed to more than 15 global acquisitions that eventually put it in control of a long list of name brands including the Carloway Mill, one of the last producers of handwoven Harris tweed on Scotland’s Isle of Lewis. As a result, its total debt ballooned from Rmb15bn ($2.2bn) at the end of 2015 to Rmb28bn at the end of 2018.
According to an ICA document seen by the Financial Times, Bangladeshi textile group Valleycot Marketing bought 7,000 tonnes of Australian cotton from Shandong Ruyi between 2016 and 2017 but the Chinese company delivered only a portion of that order.
Valleycot initiated arbitration against Shandong Ruyi in February 2019 and was awarded about $1m in compensation, the documents showed. But the Chinese company has not paid even part of it.
“Since the publication of the award, Shandong Ruyi has expressed their inability to pay up even a fraction of the award due to their financial woes,” said Khondoker Shahriar, Valleycot chief executive.
Shandong Ruyi did not respond to a request for comment.
Shandong Ruyi was founded as a textile manufacturer in northern China in the 1970s but began rapidly expanding into the world of fashion starting in 2015.
The accumulation of fashion assets earned it the moniker “the LVMH of China”, likening it to the Parisian group that takes its name from luxury brand Louis Vuitton, champagne house Moët et Chandon and cognac distiller Hennessy.
But over the past year it has faced problems paying for its trophy acquisitions. Last year, Shandong Ruyi was forced into restructuring and required a bailout from the local government in Jining city where it is based. It narrowly avoided a default on renminbi-denominated bonds last month.
