House of Fraser's Oxford Street store

LONDON — The marriage is off.

Chinese conglomerate C.banner International Holdings Ltd. has walked away from a deal to buy a 51 percent stake in the struggling British retail chain House of Fraser, both companies confirmed Wednesday.

C.banner, which owns the toy store chain Hamleys and a host of Chinese fashion and footwear companies, had agreed in May to take a majority stake in the retailer, which has been buffeted by lack of investment from its Chinese owner, Nanjing Cenbest, onerous rents and business taxes and shrinking footfall.

The investor’s promise included a 70 million pound injection and had hinged on HoF restructuring its debts and shutting stores, all of which it plans to do. In the meantime, C.banner’s own shares on the Hong Kong Stock Exchange have plummeted, and now it can no longer afford to raise the money to invest in HoF.

To complicate matters, S&P downgraded HoF’s rating earlier this week to “selective default,” making it harder for the company to borrow money.

HoF said in a statement that it acknowledges the announcement C.banner made earlier in the day to the Hong Kong exchange regarding the fall in its share price and plans to raise money for its purchase of HoF by selling shares. In mid-May, C.banner was looking to sell shares between a range of 2.40 Hong Kong dollars and 3.00 Hong Kong dollars, or $0.31 and $0.38. The shares are  trading at 71 Hong Kong cents, or $0.09.

“In light of C.banner’s announcement, House of Fraser is in discussions with alternative investors and is exploring options to obtain the required investment on the same timetable. Discussions are ongoing and a further announcement will be made as and when appropriate,” the HoF statement said.

In June, HoF had filed an application for a CVA, or Company Voluntary Agreement, an insolvency process in Britain that allows indebted companies to restructure and strike deals with their creditors. Landlords, meanwhile, have mounted legal challenges against HoF in a bid to claw back as much rent as they can.

As part of its restructuring, HoF said it is also planning to close 31 of its 59 leased stores across the U.K. and Ireland, including the London Oxford Street flagship and another unit in the City of London. Some 6,000 layoffs are expected, the company said.

With its potential investor now gone, the retailer is said to be seeking millions in emergency funding to pay its quarterly rent bill in September and for operating expenses such as salaries and cash to buy Christmas inventory. On the bright side, the company has recently won a legal battle to extend the payment deadline for its debts and to take on more debt, with repayment in October 2020.

What now? HoF’s current Chinese owner can always go back to one of the early bidders for the company. As reported in March, it looked as if Nanjing Cenbest’s owner Yuan Yafei was set to sell HoF to Wuji Wenhua, a tourism development company. That deal stalled.

In the meantime, Sky News has reported that Mike Ashley, the controversial Sports Direct boss who already owns 11 percent of HoF, wants to rescue the firm and is already in talks with the department store chain and its adviser Rothschild to inject 50 million pounds into the company.

Ashley has been eager to shift his focus to the higher end of the market, with indirect investments in fashion showrooms and Agent Provocateur and plans to open a branch of his Flannels upscale clothing and accessories chain on Oxford Street early next year.

The demise of House of Fraser has been rapid in a cold climate for traditional brick-and-mortar retailers here. Less than five years ago, HoF’s owners were in advanced talks to sell the retailer to Galeries Lafayette while simultaneously pursuing plans for an initial public offering.

In the end, the retailer’s owners went with Yafei’s Sanpower, which acquired a majority stake in the department store company through its subsidiary Nanjing Cenbest in a deal valued at 480 million pounds.

Yafei promised much but has, so far, delivered little.

When Sanpower bought HoF, it outlined plans to take it global with outposts in Russia, the Middle East and especially China. Sanpower had discussed plans to open up to 50 House of Fraser stores in China under the name Oriental Fraser. In the end, only one House of Fraser store opened in China, in Nanjing in 2016. None of the other plans ever came to fruition, and Sanpower perennially failed to invest in the chain.

HoF is nearly 170 years old and stocks more than 1,200 brands in stores and on its web site. The group has annual sales of 1.2 billion pounds and employs about 5,000 House of Fraser employees and 12,500 concession colleagues.