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Carrefour is locked in a legal battle with Chinese conglomerate Suning over payment for a deal to acquire the French retailer’s stores in China, which are in crisis after the pandemic gutted the business in the country.
Suning has been ordered by a court in Hong Kong to pay Carrefour more than Rmb1bn ($134mn) as part of a 2019 deal to buy the French food retailer’s Chinese outlets, Carrefour chief financial officer Matthieu Malige told the Financial Times.
Suning, the Alibaba-backed owner of Italian football club Inter Milan, bought an 80 per cent stake in Carrefour’s China business in 2019 for Rmb4.8bn at the tail-end of a debt-fuelled dealmaking spree.
But when Carrefour exercised its put option agreed in the deal to sell the remaining 20 per cent to Suning in 2021, the Chinese group failed to pay the full amount, said Malige.
“Carrefour Group has successfully taken legal action to recover the amounts due, and is currently enforcing the favourable decision it has obtained against Suning,” he said, adding that since 2019, “Carrefour China has been under the sole control and management of Suning”.
The French retailer has also terminated the licence agreement in the first half of 2023 that had allowed Suning to operate stores under the Carrefour banner, Malige said. Interest and other penalties will also be added to the approximately Rmb1bn that Suning owes Carrefour, according to a person with knowledge of the issue.
Suning is one of several Chinese conglomerates, including distressed debt investor China Huarong Asset Management and property group Evergrande, struggling to finance debt years after snapping up assets to expand their growing empires. China’s property crisis and the Covid-19 pandemic have intensified the financial pressure on the indebted groups.
A spokesperson for Suning said it had “raised objections” to the Hong Kong ruling, adding that the group has “simultaneously taken legal action against Carrefour Group regarding the losses incurred in the equity acquisition project due to issues related to information disclosure”.
Carrefour declined to comment on Suning’s countersuit.
The network of Chinese stores Suning purchased from Carrefour has been bleeding cash and it is facing a wave of lawsuits for failing to pay suppliers as it shuts outlets across the country. In the second quarter of this year, Suning closed 73 stores, while the fate of the remaining 41 is uncertain.
“Carrefour China is in deep crisis,” said Shaun Rein, managing director of China Market Research Group. “It was one of the best-run foreign companies in China in the early 2000s, but the rise of ecommerce and Covid-19 killed the business.”
Four years ago, Carrefour Group exited China as part of a global consolidation strategy after a period of rapid expansion. “They decided to refocus on places where they were number one or two in market share,” said Cedric Lecasble, consumer analyst at Stifel.
Carrefour found a buyer in Suning, which was on a spending spree after buying a majority stake in Inter Milan in 2016, as well as department stores from real estate conglomerate Wanda Group in 2019, to diversify its ailing electronics business.
But the pandemic accelerated shifts in consumption habits away from Carrefour’s hypermarkets, a blend of big box department store with a grocery supermarket, said Jason Yu, managing director at consultancy Kantar. Shoppers started favouring smaller, closer stores like the Alibaba-owned supermarket chain Hema Xiansheng.
By the end of 2022, Suning reported Rmb7.3bn of losses from Carrefour China since the acquisition. Meanwhile, discount ecommerce player Pinduoduo grew rapidly on the success of its group shopping model, where shoppers get together to buy items in bulk.
Since May, Chinese courts have issued at least 40 rulings against Carrefour China for failure to pay suppliers and landlords, while customers are demanding refunds on pre-paid cards.
Suning management has said it is working to revive Carrefour China’s fortunes by closing lossmaking stores and improving supply chain efficiency. But analysts note the brand’s reputational damage will make this difficult.
Additional reporting by Gloria Li and Greg McMillan in Hong Kong
