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Carrefour is currently engaged in a legal battle with Chinese conglomerate Suning over payment for the acquisition of Carrefour’s stores in China. The business has been severely impacted by the COVID-19 pandemic.
A Hong Kong court has ordered Suning to pay Carrefour over Rmb1bn ($134mn) as part of a deal made in 2019 to purchase Carrefour’s Chinese outlets, according to Carrefour CFO Matthieu Malige.
Suning, which is backed by Alibaba and owns Italian football club Inter Milan, acquired an 80% stake in Carrefour’s China business for Rmb4.8bn in 2019. However, when Carrefour exercised its put option to sell the remaining 20% to Suning in 2021, the Chinese group failed to pay the full amount.
“Carrefour Group has taken legal action to recover the amounts due and is currently enforcing the decision in its favor against Suning,” said Malige. He also stated that Carrefour China has been under the sole control and management of Suning since 2019.
Carrefour has terminated the license agreement that allowed Suning to operate stores under the Carrefour banner in the first half of 2023, according to Malige. Additional interest and penalties will be added to the approximately Rmb1bn owed by Suning to Carrefour.
Suning is one of several Chinese conglomerates, including China Huarong Asset Management and Evergrande, facing financial difficulties due to their accumulated debt and the impact of the property crisis and the pandemic.
A spokesperson for Suning stated that they have raised objections to the Hong Kong ruling and have taken legal action against Carrefour Group regarding losses incurred in the equity acquisition project.
Carrefour declined to comment on Suning’s countersuit.
The network of Chinese stores purchased by Suning from Carrefour has been experiencing significant financial losses. Suning is facing multiple lawsuits for its failure to pay suppliers as it closes stores across the country. In the second quarter of this year, Suning closed 73 stores, with the fate of the remaining 41 uncertain.
“Carrefour China is in a deep crisis,” said Shaun Rein, managing director of China Market Research Group. “It used to be one of the best-run foreign companies in China, but it couldn’t withstand the rise of ecommerce and the impact of COVID-19.”
Four years ago, Carrefour Group exited the Chinese market as part of a global consolidation strategy. They chose to focus on markets where they held a leading market share. Carrefour found a buyer in Suning, which was expanding its business through acquisitions at the time.
However, the pandemic further accelerated changes in consumer behavior, with shoppers preferring smaller stores like the Alibaba-owned supermarket chain Hema Xiansheng over Carrefour’s hypermarkets.
As of the end of 2022, Suning has reported Rmb7.3bn in losses from its ownership of Carrefour China. On the other hand, discount ecommerce player Pinduoduo has experienced rapid growth.
Chinese courts have issued more than 40 rulings against Carrefour China since May for its failure to pay suppliers and landlords. Customers are also demanding refunds on pre-paid cards.
Suning is working to revive Carrefour China’s fortunes by closing unprofitable stores and improving the supply chain. However, analysts believe that the brand’s damaged reputation will present challenges to this effort.
Additional reporting by Gloria Li and Greg McMillan in Hong Kong
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