Baugur group could face administration

BAUGUR, THE Icelandic investment group that bought much of the British and Irish high street in the last decade, could fall into administration after Icelandic bank Landsbanki decided to call in its £1 billion debt.

Landsbanki said yesterday that it had asked PricewaterhouseCoopers to step in and run the business, which owns stakes in UK retailers such as department store chain House of Fraser, Hamleys toy shop and Saks, the US department store.

However, Baugur has attempted to stymie the process by filing for protection from its creditors in Reykjavik yesterday morning.

Companies related to Baugur employ 50,000 people worldwide, with the investment group holding stakes in several retailers that operate in Ireland, including brands such as Oasis, Warehouse, Coast, Principles and Karen Millen, which are part of Mosaic Fashions, in which Baugur has a 49 per cent stake.

These brands are likely to be sold off to interested bidders such as retail entrepreneur Philip Green, who owns the retail group Arcadia, or a private equity firm such as Alchemy Partners.

Jón Ásgeir Jóhannesson, the chairman of Baugur once viewed as one of the key players in Iceland’s economic expansion, attacked the bank for delivering the company into the hands of “British vultures”.

He added: “I’m sure that Philip Green is dancing a war dance in his living room, because now he will become a large owner of our companies for virtually nothing.”

People who have seen Baugur’s books say there is little or no equity in the business as its balance sheet is weighed down by the pile of debt.

That means that – whether the Reykjavik moratorium or London administration takes precedence – Landsbanki is likely to take control of the company at some stage.

Individual retailers in which Baugur has a stake scrambled to assert their independence from their troubled shareholder, arguing that the potential administration of Baugur did not mean they themselves were in danger.

“We can only continue to emphasise that the difficulties that Baugur faces do not affect House of Fraser’s trading or banking position,” said Don McCarthy, chairman of House of Fraser and a Baugur director.

Baugur has a 35 per cent stake in House of Fraser.

“It is business as usual,” Mr McCarthy said.

Mosaic Fashions, whose stable of brands includes Karen Millen, Principles, Oasis, Warehouse, Coast and the Shoe Studio, said it too was unaffected by Landsbanki’s decision to withdraw support for Baugur.

Mosaic said discussions about its long-term funding were ongoing with Kaupthing Bank, the nationalised Icelandic bank.

However, Mosaic needs financial support to continue in business and is willing to sell assets to survive.

Landsbanki also backed the operating companies, saying that the retailers were “unaffected” by the legal moves against the investment group.

Baugur also has minority stakes in Debenhams and fashion chain French Connection.

Nick Bubb, analyst with Pali International, said: "It's likely that Mosaic, which is regarded as the problem child, will be broken up. Iceland , which is the jewel in the crown, and House Of Fraser will probably be okay." – ( Financial Timesservice)