Unit of SMCP's majority shareholder fails to redeem bonds

BY Reuters | CORPORATE | 09/23/21 05:31 AM EDT

PARIS (Reuters) -French fashion company SMCP, whose brands include Sandro and Maje, said on Thursday that a unit of its majority shareholder failed to meet a debt obligation, which could open the door to a change in ownership of the retailer.

SMCP shares closed up 8.6% on speculation of it changing hands.

European TopSoho, a unit of China's Shandong Ruyi, defaulted on a bond exchangeable for SMCP shares due Sept. 21, SMCP said in a statement.

If Ruyi does not repay the bond by a Sept. 30 grace period, the Chinese clothing conglomerate, which owns a 53 percent stake in the French fashion retailer, could settle the bond with collateral of at least 28 million shares, said Jefferies analyst Kathryn Parker.

That would correspond to a stake of around 37%, passing the 30% threshold requiring companies to make a takeover offer. A source close to the bondholders said they were seeking reimbursement and not interested in taking over the company.

"SMCP would no longer have Shandong Ruyi as a majority holder, and this would be positive for the shares because it would remove the uncertainty of having a shareholder that's going through default," said Parker, noting possible speculation on the company going completely private.

The analyst added that SMCP would make an attractive target to some of the affordable luxury players in the United States.

Business picked up considerably at SMCP in the first half of the year, with appetite in China for its contemporary French fashion helping the group post sales growth of 54.6% on an organic basis.

Ruyi, which once harboured ambitions of building an empire that would rival that of luxury behemoth LVMH, has struggled under the weight of the debt from acquisitions. Financing difficulties worsened with the outbreak of the coronavirus in China.

Neither Shandong Ruyi nor European TopSoho immediately responded to emailed requests for comment.

($1 = 0.8530 euros)

(Reporting by Sarah Morland and Mimosa Spencer; Editing by Nick Macfie)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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