Selfridges co-owner in financial turmoil

Signa Holding (Signa), the co-owner of luxury department store, Selfridges, has applied for “self-administration” in Austria. On Wednesday 29th November, Signa who also owns most of Germany’s largest department stores and half of the Chrysler Building in New York applied to court under Austria’s Insolvency Proceedings Act (Insolvenzordnung). They now have 90 days from its application to submit a restructuring plan acceptable to creditors.

Restructuring Plan
Unlike UK insolvency laws which provide for an independent insolvency practitioner to manage the Administration of a company, Austrian laws allow for a company to apply for a restructuring plan called “self – administration” in which the directors retain control under the supervision of an independent administrator. There is also the restructuring option of “no self-administration” in which an insolvency administrator is appointed.

In a statement issued shortly before the court application, Signa stated “Despite considerable efforts in recent weeks, the necessary liquidity for an out of court restructuring process could not be secured, and so Signa Holdings has now applied for reorganisation proceedings.”

The Empire
Rene Benko, the Austrian billionaire behind Signa spent over two decades building his empire. Benko has propelled Signa from its modest origins of fixing up apartments in his hometown of Innsbruck to the one of Europe’s largest property developers. Signa Holdings is part of the Signa Group which owns a portfolio of different properties across Europe. Benko used Signa as a vehicle to acquire buildings in run down city centres, knock them down and redevelop them into luxury projects with big-name brands. The Benko business model appeared to be working and the Signa saw massive growth and expansion.  In 2019 Signa Holdings reported its biggest profit of over 1billion euros.

Signa Holdings who together with Thailand’s Central Group jointly acquired Selfridges two years ago for circa £4 billion also owns Germany’s biggest department stores, Galeria Karstatd Kaufhof (GKK) and KaDeWe.

Whilst GKK maintain that Signa’s application has had no impact, it earlier this year announced thousands of job losses and will now not see the 200mn euros promised by Signa to help support its turnaround.

Despite Signa’s financial struggles, KaDaWe, the operating arm of the equivalent of Berlin’s equivalent of Harrods and a host of other German and Swiss luxury department stores is reported as being in sound financial health.

With over 1000 corporate entities, The Signa Group, whose sprawling assets include luxury hotels in Europe and a stake in Austria’s biggest tabloid, represents a complex web of companies. This complexity appears to have contributed to its financial downfall.

Collapse
Cracks began to emerge earlier this year when Signa Holdings withdrew funding for two of its subsidiaries, Signa Sport United (the online sports division) and Signa Real Estate. Signa Holdings withdrew funding of around 150m euros to Signa Sports United which caused the NYSE listed company to file for Bankruptcy and has affected subsidiaries including cycling retail giant, Wiggle Chain Reaction, who consequently entered Administration in October.

As investors and lenders continue to lose trust in Benko and his property empire, the spotlight turns to the more lucrative arms of the Signa Group, Signa Prime and Signa Development. Both companies are said to own Signa’s core assets. In 2022 the Signa Group claimed to own a portfolio of buildings worth 27billion euros with a pipeline of developments worth 25bn euros. However, there are concerns regarding the true value of the properties and question marks around the level of debt secured against the properties.

Investor confidence has been further dented by the negative press Signa has received over the past few years. Last year, Signa offices were raided by Austrian Police investigating high-level corruption. In the past few months, Benko has been ousted; work on a 700mn euro project to build the third tallest tower in Germany (The Elbtower in Hamburg) has come to a grinding halt because of Signa’s inability to pay workers.

With an estimated 13billion euros of indebtedness (according to JP Morgan analysts), it’s no surprise investors are starting to panic. The collapse of Signa is set to be one of the most expensive corporate restructures in Austrian history and send shockwaves across the European retail sector. With concerns over the opaque nature of the Signa Group and its complex structures, it’s only a matter of time before questions are raised over the involvement of the two biggest financial beneficiaries, Benko Foundation and Laura Foundation. Watch this space as the complex web begins to unravel.