"The policy of biting more than they can chew is backfiring in many Chinese companies who now saddled with mounting debts due to acquisition of many international brands over the last ten years. A case in point is Shandong Ruyi Technology Group, which has so far spent over 40 billion yuan on its ambition to build “China’s LVMH."

The policy of biting more than they can chew is backfiring in many Chinese companies who now saddled with mounting debts due to acquisition of many international brands over the last ten years. A case in point is Shandong Ruyi Technology Group, which has so far spent over 40 billion yuan on its ambition to build “China’s LVMH.”

Over the last 10 years, the company has spent a lavish amount to acquire legacy brands such as Gieves & Hawkes, Aquascutum, SCMP. This has in multiple bonds of the company being listed on the credit watch list and its issued bonds being listed as uncertain. Its corporate rating was recently downgraded to Caa1 from B3 with its outlook assigned as “negative.”

Competition from other brands halts progress

In the next 12-18 months, Shandong Ruyi will have to spend less on international M&A shopping and more on addressing its fast-growing pile of maturing debt. The company also faces the risk of being acquired by a European company. In recent years, many Chinese brands have been acquiring European companies. However, this trend has slowed down with Shandong being the bellwether.

Though Shandong Ruyi has built an impressive portfolio in the last decade, but stiff competition from the actual LVMH for acquiring brands like Tiffany & Co, is likely to put a brake on its shopping spree.

An exception to the rule

However, an exception to this slowdown next year could come from Shanghai-based Fosun International that has the required funds for new acquisitions. The company purchased Club Med in 2015 and French luxury mainstay Lamving last year. It now plans to turn the fortunes of the brand around by investing more capital into. However, these plans of the company depend on the brand’s performance. In case, Lanvin’s performance does not match the brand’s expectation, the company might cool off on its efforts to turn debt-ridden foreign brands back into profitability.