Baugur Seeks to Allay Fears

Baugur investment firm caught up in Icelandic crisis.

LONDON — In the wake of the financial crisis in Iceland, Baugur, the Icelandic investment company whose interests incorporate a large chunk of the British high street, is in serious spin mode.

This story first appeared in the October 7, 2008 issue of WWD.  Subscribe Today.

The company’s chief executive officer, Gunnar Sigurdsson, issued a statement Monday saying the company won’t be affected should Iceland’s banks sell their overseas assets to support the country’s struggling economy and falling currency. “In response to the speculation that Icelandic banks may sell overseas assets, we would like to make it clear that this will have no impact on Baugur’s operations or its portfolio companies,” said Sigurdsson. “In the individual cases where Icelandic banks have direct shareholdings in our portfolio companies, we would emphasize that these are all minority shareholdings.”

He added that if Icelandic banks did sell their shares in Baugur’s businesses, “there would be no impact on the successful day-to-day operations of these companies, but would only change their ownership structure.”

Baugur’s retail investments include specialty chains Karen Millen, Whistles and All Saints in the U.K. The company led a consortium called the Highland Group that bought the U.K. department store retailer House of Fraser in 2006 and Baugur also owns an interest in Saks Fifth Avenue.

Iceland’s government on Monday passed emergency legislation giving the government more authority over the country’s banks, and on the same day temporarily suspended trading at six banks and financial groups. Due to the Icelandic economy’s dependence on its banks, and the size of the banks compared to the rest of the economy, the country has been hit particularly hard by the credit crunch. Baugur is said to have a long-standing relationship with the Icelandic bank Kaupthing, though many of its transactions have been funded by international banks.

Last week, Iceland’s government took a 75 percent stake in the country’s Glitnir bank for 600 million euros, or $843 million, following problems with its funding. That led to its largest shareholder Stodir — an investment company separately controlled by Baugur’s executive chairman Jón Asgeir Jóhannesson and his family — filing for administration. Stodir had been due to take a 39 percent stake in Baugur, but that deal was not completed.

After Stodir filed for administration (the European equivalent of bankruptcy), Sigurdsson stressed it was “business as usual” for the company. “Baugur would like to state for clarity that its assets are based in the United Kingdom, Scandinavia and the United States and as such have no exposure to the Icelandic economy,” Sigurdsson said. “At the same time the funding for these businesses is secure and the vast majority of this funding is through international banks with whom Baugur has a long working relationship.”

Since then, the U.K.-based credit insurer Euler Hermes said it would not insure some of Baugur’s suppliers. Following the news, a spokesman for Baugur said Euler’s decision was “due to a misunderstanding of the impact of economic situation in Iceland.”

“Euler Hermes is not the main supplier of credit insurance to our portfolio companies,” the spokesman said. “Other credit insurance providers remain supportive of Baugur and our portfolio companies. We are currently in discussions with Euler Hermes and remain confident that a solution will be found.”