Tue 07/21/2020 07:26 AM
The Shandong provincial government is contemplating restructuring options for Shandong Ruyi Technology Group as onshore law firms approach the local government for a potential legal advisor mandate, according to two sources with direct knowledge of the discussions.

The government has yet to decide whether Ruyi should adopt an out-of-court or in-court restructuring, but given the current liquidity of the company, recovery rate for unsecured creditors is expected to be less than 10%, the sources noted.

Major companies in Shandong - including privately owned enterprises like Ruyi - would need the local government’s approval before entering into a restructuring as it could lead to unemployment issues and loss of tax income, one of the sources said.

As reported, the Shandong government has formed a working group led by two deputy secretaries to handle the situation of Ruyi while Guo Shuqing, chairman of China Banking Regulatory Commission and a former head of Ruyi’s home province of Shandong, as well as current Shandong party chief Liu Jiayi, have also stepped in, reflecting the gravity of the situation.

Previously at a creditor committee meeting held in March, onshore bank lenders agreed to term out their debts for two years, reduce the annualised interest rate under the debts to a benchmark rate and change the interest payment frequency from quarterly to semi-annually. Credit lines that were available before June 2019 were also resumed in an attempt to alleviate a cash crunch at the distressed textile conglomerate.

The meeting also approved a RMB 6 billion ($849.3 million) debt-for-equity swap with an unspecified asset management company and extended maturities on equipment and receivable financing debts from five years to 10 years, while trade loans will be allowed to be drawn down for working capital use.

However, the debt relief plan could not materially solve Ruyi’s issues as the company still needs new sources of funding to repay outstanding debt while it has made little progress in the introduction of potential strategic investors, said the two sources and another creditor source.

Meanwhile, Ruyi will soon convene a bondholder meeting with holders owning more than RMB 500,000 under its RMB 1.5 billion 7.9% five-year corporate bond due 2023, puttable Sept. 18, 2020 (“18 Ruyi 01”) but the exact date for the meeting had not been determined yet, according to two bondholder sources briefed by the company.

Sources expected Ruyi to continue to dissuade the holders from exercising the put option during the meeting, as Ruyi would be unable to redeem the bonds when they become puttable in September and it had started to negotiate with holders owning more than RMB 500,000 of the bonds, as reported.

As reported, Shandong Jining Rencheng District People’s Court has accepted a voluntary bankruptcy reorganization petition on July 2 from Jining Ruyi Sijihuacheng Real Estate Co. Ltd, which is an indirect wholly owned subsidiary of Ruyi’s largest shareholder Beijing Ruyi Fashion Investment Investment Holding.

As reported, from September 2019 to early 2020, Ruyi has been counting on Jining City Urban Construction Investment (JCCI), a local government financing vehicle controlled by Ruyi’s home city government, to address its liquidity issue by transferring its assets to the platform in exchange for new refinancing for debt repayment.

Ruyi has so far transferred certain assets to JCCI including equity interests in Jining Ruyi Fibre (PRC) - an onshore holding company of Lycra - and three office towers. In return, JCCI provided a guarantee on the repayment of RMB 2 billion 5.95% “15 Ruyi” corporate bonds due 2020, which helped dissuaded most of the holders from exercising a put option last October.

As reported, Ruyi extended the RMB 75 million coupon payment under its RMB 1 billion ($141 million) 7.5% medium term notes due June 15, 2022 “19 RuyiTech MTN001” for another six months to December after it first deferred the March 15 coupon for three months to June 15.

Offshore, Ruyi failed to make a $10.425 million coupon payment on July 6 under its $300 million 6.95% senior notes due July 5, 2022, as reported. The coupon payment has a 30-day grace period according to the notes offering memorandum.

European TopSoho, the parent company of Shandong Ruyi’s French apparel subsidiary SMCP, belatedly paid the €2.5 million interest coupon that was due on June 22 under its €250 million 4% convertible bonds due September 2021, as reported.

A Ruyi representative declined to comment.

See Reorg’s updated tear sheet for Ruyi HERE.

Capital structure of Shandong Ruyi is below:

Click HERE to enlarge the image

-- Katherine Shi
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