Famous Chinese Daily Chemical Company with Huge Debt Declares Bankruptcy

Abstract: Reward Group, one of the top 500 private enterprises in China, terminated the reorganization process and declared bankruptcy of Reward Group. Reward Group is mainly engaged in daily chemicals, food, and so on.

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On August 15, Reward Group announced that on August 12, Beijing Chaoyang District People's Court issued an announcement that the court ruled to terminate the reorganization process of Reward Group Company and declare Reward Group Company bankrupt because the Company's Draft Reorganization Plan was not approved by the creditors' meeting.

According to CHAILEEDO, in 2019, Reward Group applied to the court for bankruptcy reorganization on the grounds of its inability to settle its debts as they fall due and its apparent lack of solvency. The bankruptcy reorganization involved two wholly-owned subsidiaries of Reward Group: Suvow and Reward Home Care Chemical.

Reward Group was one of the top 500 private manufacturing companies in China and had acquired 80% of the shares of Panrosa in the United States and 77.34% of Le Chatelard in France to expand its daily chemical business.

The balance sheet submitted by Reward Group shows that as of December 31, 2018, Reward Group had total assets of 11.2 billion yuan(about $1.6 billion) and total liabilities of 6.1 billion yuan(about $898 million). Suvow had total assets of 3.3 billion yuan(about $486 million) and total liabilities of 2 billion yuan(about $294 million). Reward Daily Chemical had total assets of 1.46 billion yuan(about $215 million) and total liabilities of 1.05 billion yuan(about $155 million).

Although the company's book assets are greater than its liabilities, the company's monetary funds are seriously insufficient. By the end of 2018, the three companies' monetary funds total about 477 million yuan(about $70.2 million). Some of the funds as a bank loan deposit can not be drawn, the remaining assets are difficult to realize, or a short period of time to realize the value will be significantly depreciated. Thus it was unable to settle the debt due.

It is reported that Reward laundry detergent powder and laundry detergent are the most competitive products of Reward Daily Chemical, which has 7 brands. "Since 2014, Reward's daily chemical products have shown a fluctuating trend of decline in both sales revenue and profit." Brand marketing experts said that the strategy of Reward Group is to occupy the two product categories of home cleansing and personal care and complete full coverage of the high-middle-and-low market.

However, Jiangsu Reward Home Care Chemical's financial report shows that from 2014 to the first half of 2017, the company's revenue was 10.27 million yuan(about $1.51 million), 47.03 million yuan(about $6.9 million), 100.1 million yuan(about $14.7 million) and 19.61 million yuan(about $2.89 million). The net profit was -950,000 yuan, 3.64 million yuan, 3.51 million yuan, and 560,000 yuan accordingly, with the growth rate of revenue and net profit showing a significant decline since 2015. The reason for the decline is partly due to the serious squeeze of first-line brands such as Blue Moon and Lipai, as well as the fact that in addition to the early soap powder, there has not been a large single product that can be replaced.

For the reason for Reward Group's bankruptcy, CHAILEEDO found that part of the reason was over-expansion. In order to promote the group's rapid growth, Reward Group also made large-scale mergers and acquisitions abroad, adding 11 new subsidiaries. "In these large-scale investments and acquisitions, Reward Group could only raise funds by issuing multiple bonds used to meet investment needs with repayment of bank debts." A securities researcher analysis said.

In addition, Reward Group's bankruptcy may be related to bond defaults. In 2017, the company was exposed to default on a short-term financing bond. Since then, Reward Group has had several bond defaults. Up to now, the company has seven in default, with a total of 4.75 billion yuan(about $699 million) of defaulted principal.

It is worth noting that in the announcement of Reward Group, the administrator will sort out the outstanding contracts as soon as possible. If they meet the statutory conditions, the administrator will apply for permission to continue to perform in accordance with the law. At present, Reward Group's official flagship stores on a number of e-commerce platforms are operating normally. The types of products include laundry cleaning and other daily chemical products.