Retailer Arcandor cannot tap the German government's $160 billion rescue fund, a government panel ruled today, leaving the stricken firm hoping for an emergency state loan by Wednesday to avert bankruptcy.
The government committee in charge of reviewing Arcandor's request for hundreds of millions of euros in state guarantees from a special rescue fund for crisis-hit companies turned thumbs down today, an economy ministry spokesman said.
"It was rejected," the spokesman told reporters in Berlin.
That left Arcandor hanging by its fingertips ahead of the government's decision - due by Wednesday - on a separate request for a €437 million loan from state bank KfW.
Arcandor shares lost more than 40 per cent of their value at times and were down 30.9 per cent at €1.30 by 10.45am.
Time is running out for the retailer. It needs to renew credit lines worth up to €710 million by Friday for which it needs government backing.
It has warned it may not survive if it fails to do so, but said it would not file for insolvency as long as it was awaiting the government's decision.
Arcandor Chief Executive Karl-Gerhard Eick said in May he needed more than $1 billion from the German bailout fund to renew credit lines and fund a five-year turnaround plan which would see the retailer, formerly known as KarstadtQuelle, move down market and hive off loss making businesses.
It became apparent last week that Arcandor may not qualify for such aid after the European Commission said Arcandor's woes pre-dated the crisis, essentially making it ineligible for aid from Germany's economic stimulus fund.
Arcandor then applied for a smaller loan from the state development bank KfW, which would be enough to tide it over the next six months, buying time to find other possible solutions.
These include a deal with rival Metro, which has proposed merging the two companies' department store chains.
But Arcandor has already said that such a deal would not solve its problems as it would most likely not bring in enough money for it to survive on.
It could lead to a break-up of the company, whose Karstadt department stores go back to the 19th century and are a prominent feature on Germany's high streets.
Arcandor also owns a majority stake in travel group Thomas Cook, Europe's second-largest travel company, but has used it as collateral for loans. Eick has pointed out that Thomas Cook shares have fallen so much in value that a sale would not generate enough to pay off its loans.
Berlin has urged Arcandor to consider a deal with Metro and Finance Minister Peer Steinbrueck affirmed today that owners and shareholders of Arcandor had to do their share, echoing earlier such calls from other cabinet members.
Reuters