Saudi Arabia’s biggest banking family is making a play for The Children’s Place

Not all of the money in Saudi Arabia is oil money. The Al-Rajhi family parlayed a camel rental business into the world’s largest non-state Islamic bank, Al-Rajhi Bank, and is now one of the wealthiest families in the kingdom outside the royal family. When you have that much money, you want to put it to work. And one of the ways the family is doing that is by plowing a bunch of money into struggling kids’ clothier The Children’s Place.

Semafor reports that Mithaq Capital, one of the family’s investment arms, bought $80 million in The Children’s Place stock over the course of just three transactions — a really aggressive maneuver. Not only does that get them 54% of the US-based company, but it also blows up the company in the process. That’s because The Children’s Place, which is also the parent company to once-rival retail brand Gymboree, opened a $400 million credit line in 2019 that they upped to $445 million last June.

Not kid’s play

The Children’s Place has been trying to turn things around for a while now. The death of the mall and the rise of e-commerce have not been kind to the retailer, and its latest numbers don’t make it seem like things are going well: Revenue in the last quarter didn’t even hit the company’s own guidance. (These numbers, reported Feb. 9, are preliminary; the whole hostile takeover thing probably made it hard to put together a full 10-Q.)

On an earnings call going over the previous quarter, COO and CFO Sheamus Toal told investors that the company was battling “continued macroeconomic challenges” that include “persistent inflation, a highly promotional retail environment, concerns over the resumption of student loan payments, and other domestic and geopolitical concerns weighing on consumer confidence.”

Credit due

Think of that $445 million loan agreement, which is a so-called “revolving” facility, as a credit card with a really, really high limit. As of late October (pdf), The Children’s Place had run up a $366 million balance. Okay. Part of the agreement is that the money is secured to the company’s inventory, which was worth $462 million at last accounting. So far, so good.

(These numbers, by the way, are in constant flux outside the eye of a Securities and Exchange Commission filing: The company said in its recent preliminary numbers that “total indebtedness” was down to $277 million.)

But: Another part of the agreement is that if The Children’s Place experiences a change of ownership (like, say, a Saudi banking family biting off 54% of the company’s shares), then the company has to pay off its tab. At last accounting, there was $13 million cash in the bank. Not great. That means that, technically, the company has to use its vast warehouses of children’s clothes to pay back its lender and not to make money.

Hence, in the filing announcing the Mithaq stake on Thursday (Feb. 15), The Children’s Place meekly stated that it “intends to accept Mithaq’s request to enter into discussions regarding the provision of financing to assist with the Company’s liquidity needs.” Talk about a splash.