House of Fraser’s Chinese owner struggles with liquidity pressures

Chinese conglomerate Sanpower is facing liquidity pressures in the wake of a debt-fuelled global buying spree, adding to concerns over the future of the UK department store House of Fraser, which it bought in 2014.

The Nanjing-based real estate and department store group, controlled by chairman Yuan Yafei, began buying overseas assets four years ago, in a streak that included House of Fraser, Israeli healthcare group Natali and US pharmaceutical company Dendreon, backed by debt.

Starting in 2016, it has sought to sell stakes in the 169-year-old House of Fraser, but had been unsuccessful.

A deal in which Hong Kong-listed shoe retailer C.banner planned to buy a 51 per cent stake in House of Fraser collapsed this week when C.banner issued a profit warning. The transaction with C.banner, the owner of UK toy shop Hamleys, would have delivered a £70m infusion to House of Fraser.

C.banner’s chairman, Chen Yixi, is Mr Yuan’s brother-in-law and the two companies have worked closely on overseas acquisitions, including that of Hamleys. “We consider them to be essentially part of Sanpower,” a British diplomat said of C.banner.

In March Sanpower said it would sell a 51 per cent stake in House of Fraser to a Chinese tourism group called Wuji Wenhua, but that deal never materialised.

Sanpower has also experienced some problems accessing liquidity, two people with direct knowledge of the company said. One of those people said the company’s challenges included paying expenses for business operations in China.

Chinese rating agency China Chengxin recently downgraded Sanpower from double A to double A minus, and in July the company applied to the Shanghai Stock Exchange to suspend the trading of a bond to address erratic trading.

Like many large, acquisitive companies in China, Sanpower has pledged many of its assets against its debts. More than 97 per cent of its shares in its Nanjing Xinjiekou Department Store unit, which holds House of Fraser, have been pledged.

The company did not respond to emailed questions regarding the situation.

The liquidity pressures facing Sanpower mirror those that have afflicted other Chinese conglomerates such as HNA, an airlines-to-finance group that spent tens of billions of dollars overseas but has more recently sold many of those assets.

Questions have lingered about the future of House of Fraser for years. The company has repeatedly changed hands over the previous three decades, with stints under the al-Fayed family and a 2006 acquisition by Icelandic investment group Baugur, which went bust during the 2008 financial crisis.

When Sanpower bought 89 per cent of the business in 2014, it promised to invest in the UK company already grappling with a slowdown in British retail. The Chinese group also said it would open as many as 50 outlets across China and stores in Russia and the Middle East. But Sanpower did not follow through with the promised investment the UK business, and it only opened two stores in China.

The failed attempts to sell House of Fraser, combined with the rapid deterioration of the British retail sector, has left the UK group fighting for survival. In a statement on Wednesday it said it was in talks with alternative investors.

Sanpower’s Shanghai-listed unit Nanjing Xinjiekou Department Store is the second-worst performer in China’s benchmark CSI 300 index in the year to date, down 16 per cent.

Additional reporting by Wang Xueqiao in Shanghai


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