File photo/Liu Ling (NBD)

Apr.7 (NBD) -- The debt issue of Chinese textiles and clothing company Shandong Ruyi Technology Group (Shangdong Ruyi), which is dubbed as China's LVMH by Bloomberg in 2018, is starting to affect its listed arm. 

The listed company Shangdong Ruyi Woolen Garment Group Co (Ruyi Garment, 002193.SZ) denied debt defaults and capital occupancy of its parent company in response to an inquiry letter issued by the Shenzhen Stock Exchange last Thursday.

Shandong Ruyi in March 2019 issued domestic medium-term notes of 1 billion yuan due in three years and the interest payment date is March 15 each year. And Shandong Ruyi has reached an agreement with notes holders to extend the interest payment date to June 15, 2020, which doesn't constitute default, according to the statement of Ruyi Garment. 

However, the filing revealed more worrying signs. According to the statement, Ruyi Garment has a piling debt of 3.35 billion yuan (including 981 million yuan worth of guaranteed debts), which has already exceeded its net assets of 2.79 billion yuan. 

Sales of Ruyi Garment totalled 378 million yuan in 2019 through connected transactions, 346 million yuan of which is from its parent company, accounting for 32.8 percent of the listed company's 2019 revenue. What's more, Ruyi Garment purchased 700 million yuan worth of products and services, 193 million yuan of them are from its parent company. 

With the frequent connected transactions between Ruyi Garment and its parent company Shangdong Ruyi, the debt problems of the latter will possibly trigger joint liability for Ruyi Garment, according to media outlet Jiemian.

Notably, the parent company is cash strained by frequent overseas acquisition and investments. In an effort to transform itself into a global fashion conglomerate, Shangdong Ruyi acquired French group Sandro, Maje & Claudie Pierlot, Swiss shoemaker Bally and British brands Aquascutum, TM Lewin and Gieves & Hawkes. These purchases bring Shangdong Ruyi with debts which have restricted its cash flow. 

Now that its parent company is on the brink of debt default, how it will affect the listed company remains a question, reported Jiemian.

Email: gaohan@nbd.com.cn