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Restructuring of highly indebted Chinese developer comes as property sector suffers slowdown

A group of bondholders is moving closer to formal legal action against Evergrande after the world’s most indebted property developer made a surprise disclosure that mystery lenders to one of its subsidiaries claimed more than $2bn in cash.

A group of distressed debt investors in the US and UK including Saba Capital, Redwood Capital Management and Ashmore met on Tuesday and directed lawyers to begin work on the legal analysis needed to decide whether to take action against Evergrande, according to people familiar with the talks.

One person directly involved in the situation said investors feel they have “no choice” but to commence legal action and that plans were already prepared. “I think it has massively changed the game,” the person said about the $2bn claim. “The atmosphere in the room is one of boiling blood.” 

Saba Capital, Redwood and Ashmore all declined to comment.

The developments come directly after Evergrande said on Tuesday that undisclosed lenders had taken over Rmb13.4bn ($2.1bn) of deposits at Evergrande Property Services Group, its property services subsidiary, that were pledged as security for “third party guarantees”.

The surprise revelation is set to ignite a legal battle between major international investors and the Chinese developer, which has more than $300bn in liabilities. Evergrande’s collapse, which represents the biggest debt restructuring in China’s history, comes as a slowdown in the real estate sector poses increasing financial and political risks to President Xi Jinping’s government.

Bondholders, who have held out hope of recovery on their losses through recourse to Evergrande’s Hong Kong-listed subsidiaries, say the move unfairly removes cash that could have been used to repay the company’s bonds.

They are demanding to know what the company is doing to recover the money and whether the board of the property services subsidiary approved its use as a pledge.

Evergrande, which owns more than half of the subsidiary, has not disclosed the identity of who claimed the cash but said yesterday it had set up an independent committee to investigate.

Evergrande’s international bondholders, many of whom are part of a group advised by law firm Kirkland & Ellis and investment bank Moelis & Company, are becoming increasingly aggressive. In January, the group hired law firm Harneys and said that it had “been left with no option but to seriously consider enforcement actions” on Evergrande for failing to engage with them.

Evergrande’s default, which began with missed payments in September but was not officially confirmed by a rating agency until December, has been characterised by a lack of disclosure and international investors have often been left in the dark.

Chinese authorities and the company have prioritised the completion of Evergrande’s hundreds of projects, yet the highly indebted property sector remains in turmoil despite Beijing announcing a series of easing measures to encourage growth.

Evergrande held a call with investors last night but one person said few details were disclosed. “It was as if a politician were addressing 15,000 people,” they said.

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The brand’s first in-person show since 2019 hammered home the company’s big idea: that you don’t have to sacrifice prestige, even when you’re selling to the masses.

To show his latest collection, Ralph Lauren transformed a gallery at the Museum of Modern Art into a cocktail party in his living room, with guests seated around coffee tables and models occasionally pausing as if they intended to join the conversation. Though the evening was meant to evoke an exclusive New York gathering, the sort where Jessica Chastain and Mayor Eric Adams might rub elbows, the whole world was invited.

As more than one Ralph Lauren executive noted Tuesday, the brand no longer simply puts on fashion shows, it gives its customers an “experience.” Though the guest list was kept small, the show was streamed on the brand’s website and social media.

The goal, as always, is to cement in customers’ minds that Ralph Lauren is the purest expression of American luxury, even if that customer encounters the polo logo primarily while perusing racks of marked down collared shirts at a factory outlet.

That storytelling has real stakes. In 2018, with sales declining and Ralph Lauren’s cultural legacy rapidly fading into memory, the company laid out a detailed turnaround plan. There was much talk of higher-quality fabrics, rethinking wholesale and cutting headcount at corporate headquarters. But the strategy could be summed up simply: convince a new generation of consumers that Ralph Lauren clothes were relevant and worth paying full price for.

Four years in, the now not-so-new approach is starting to pay off: a growing contingent of younger customers are more likely to walk in the door of a flagship than an outlet (and share their trip to Ralph’s Coffee on TikTok). Sales are climbing, and the margins are fatter than they’ve been in nearly a decade. Still, the company isn’t ready to declare the mission accomplished.

“The brand elevation never stops,” chief executive Patrice Louvet told BoF. “In 20 years, we’ll still be talking about brand elevation.”

Fashion shows have played a big part in cementing that idea — fitting for a brand that created the American template for storytelling through fashion over decades of Western and prep-inspired world building. The 50th anniversary bash in September 2018, a gala held in Central Park that included Oprah Winfrey and Hillary Clinton among its guests, was arguably one of the few recent New York Fashion Week shows to achieve legendary status among insiders. Subsequent collections debuted against the backdrop of a bistro or nightclub, with production values and a guest list rarely seen outside Paris or Milan.

Tuesday’s show had many of the same hallmarks. Black-and-white furniture was arranged in neat lines throughout the small gallery. Tables were decorated with vases of red roses, a giant bowl of M&Ms and models of classic cars, perhaps a nod to the Fall 2017 show set at Mr. Lauren’s upstate New York garage. The clothes adopted a similar motif, with the occasional red coat or bow breaking up the parade of black and white dresses and tuxedos.

Certain looks amid the eveningwear and riding jackets shown Tuesday were clearly intended as catnip for Ralph Lauren’s hypebeast contingent, including a black New York Yankees jacket and the occasional appearance of the Polo Bear.

It’s a high-low mix that’s played a key part in Ralph Lauren’s turnaround (Mayor Adams, for one, cited the New York-themed apparel and a one-shoulder white dress sliced with a black panel as two of his favourites). The brand still sells plenty of polos, but it says it’s finding success in high-margin products that were not traditionally in the brand’s wheelhouse. In a February call with analysts, executives repeatedly flagged strong performance in outerwear, noting sales in the category had risen by 50 percent since 2018.

On its website, Ralph Lauren sells puffers and water-repellant jackets that slot easily into the gorpcore trend, handbags priced anywhere from $100 to nearly $30,000 and sneakers that range from chunky multi-coloured high-tops to minimalist white tennis shoes. An upcoming collection features fashion inspired by early 20th century style at historically Black Morehouse College and Spelman College, an effort to include some of those left out of the brand’s original vision of Americana.

“Ralph Lauren as a company appreciated that gone were the days of simply dictating what fashion was for America,” said Simeon Siegel, retail analyst at BMO. “As soon as the company started listening … that was what it took.”

The jury is still out on whether the young customers who have embraced the new Ralph Lauren will spend enough to replace the outlet mall bargain hunters, or if the elevated Ralph Lauren on display Tuesday has a ceiling. In 2018, the company predicted its refresh would boost sales by $1 billion. That is unlikely; fiscal 2022 revenue is projected to come in around $6.2 billion, better than expected but below pre-pandemic levels and a far cry from the $7 billion-plus of the mid-2010s.

Lower revenue partly reflects a partial pullback from department stores and outlet malls. The company opened four full-price stores in America in its third quarter, the most in six years. Another dozen are planned across North America over the next couple years. Sales in Europe are surging, thanks in part to new, luxury-oriented stores like a five-story flagship opened on Milan’s fashionable Via Spiga, which includes a restaurant serving “cuisine inspired by Ralph Lauren’s personal favourites,” including mini lobster rolls. The brand hopes concept stores in Shanghai and Beijing will herald similar returns in China.

All that means that while Ralph Lauren is selling fewer clothes, each sale is more profitable: aside from a brief plunge early in the pandemic, margins have risen steadily since 2018. Ralph Lauren has been able to raise prices, even before the recent bout of inflation: in its third quarter, the average price in the brand’s direct channels was up 18 percent from a year earlier, following a 19 percent increase the year before.

“Revenues are down meaningfully from their peak, they’re selling fewer units, and that’s a good thing,” Siegel said.

Still, the temptation to juice off-price channels must be strong. It may also be inevitable, if supply chain problems ease and the US market is suddenly flooded with all the clothing sitting in container ships off the Port of Los Angeles for the last year. Rising inflation means consumers will be more sensitive to the cost of clothing; they likely won’t care that Ralph Lauren was hiking prices for its own reasons well before it became an economy-wide trend.

To succeed in the long run then, Ralph Lauren needs to sell consumers on a compelling story that makes them forget about the price on the tag — because everyone, from the bargain hunters to the high rollers, is invited to the party these days.

The luxury company is getting ready to take the plunge into the public markets.

Lanvin Group is taking the SPAC route to Wall Street.

The luxury company, home to Lanvin, Sergio Rossi, Wolford, St. John and Caruso, agreed to a merger with Primavera Capital Acquisition Corp. that will see the fashion house trade on the New York Stock Exchange under the symbol “LANV.”

The deal will give Lanvin Group a “pro forma enterprise value of $1.5 billion, with a combined pro forma equity value of up to $1.9 billion,” the companies said.

Joann Cheng, chairman and chief executive officer of Lanvin Group, said: “Today’s announcement marks another milestone in Lanvin Group’s growth journey. We are excited to partner with Primavera for our next chapter of growth across Europe, North America and Asia. In recent years, we have not only invested in prestigious heritage brands, but have also created a strategic alliance of industry-leading companies as partners and coinvestors in Lanvin Group. Each of these partners is uniquely qualified to help drive growth, enhance the performance of our brands and unlock the full potential of new markets. We plan to accelerate the growth of our portfolio via both organic development and disciplined acquisitions, building a global portfolio of iconic luxury fashion brands that appeal to a broad customer base. Lanvin Group will not only enable these brands to flourish in their home countries, but also in Asia and North America, the largest luxury markets in the world.”

As part of the deal, Lanvin Group shareholders will roll their shares in Lanvin Group into the combined venture, giving them a roughly 65 percent stake altogether. Lanvin Group will receive proceeds of up to $544 million and plans to use the money “for potential future acquisitions that complement its luxury fashion ecosystem.”

That puts an aggressive player front and center in fashion’s dealmaking world.

Max Chen, chairman, CEO and chief financial officer of PCAC and a partner at its backer Primavera Capital Group, said: “We have been looking to support an emerging leader in the consumer sector with enduring global appeal and significant growth prospects in Asia. In Lanvin Group, we see a unique global business with a rich heritage, an entrepreneurial management team, and a differentiated strategy to build a luxury powerhouse for a new generation of consumers, especially benefiting from surging luxury consumption in Asia. Lanvin Group and Primavera share the same vision of nurturing and reinvigorating world-class luxury brands. We look forward to working together to further develop Lanvin Group’s global platform and drive growth across its brand portfolio.”

Lanvin Group operates in more than 80 countries with 1,200 points of sale, 3,600 employees, and more than 300 retail stores. And it plans to open another 200 doors by 2025.

Previously known as Fosun Fashion Group, the firm changed its name in October, when it scored a valuation of better than $1 billion with investments from Japan’s Itochu Corp., Chinese footwear maker Stella International and private equity player Xizhi Capital.