Renowned Austrian tycoon Rene Benko, whose vast property empire includes prestigious assets such as the Chrysler Building in New York, has suffered a significant blow as his company, Signa, filed for insolvency. This development marks one of the most prominent casualties of Europe's ongoing property crisis. With its assets valued at €23 billion ($25 billion) in 2019, Signa's collapse could potentially become the largest real estate meltdown in Europe since the global financial crisis.
Signa Holding GmbH, the centerpiece of Benko's portfolio, made the insolvency filing in Vienna on Wednesday, with the intention of managing its own restructuring under court supervision. Despite considerable efforts to secure emergency funding in recent weeks, Signa failed to obtain the necessary liquidity for an out-of-court restructuring. The Vienna Commercial Court has confirmed the filing and is expected to appoint an administrator soon.
Signa's vast portfolio includes iconic properties such as the Selfridges department store in London, luxury malls in Vienna, and a historic hotel in Venice. The company's complex ownership structure, with numerous subsidiaries and affiliated units, has made it challenging to raise funds. While Signa Holding aims to continue its operations, it remains uncertain how its subsidiaries, including Signa Development and Signa Prime, will be affected. A German unit of Signa Prime has already filed for insolvency at a Berlin court, following a similar move from an affiliated sports retailer.
The insolvency filing indicates that Signa Holding aims to undergo self-administration to dispose of assets and restructure debt. However, this does not change the fact that it is still an insolvency proceeding. Signa Holding must present a turnaround plan within 90 days, which needs to be accepted by a majority of creditors. At least 30% of the claims must be paid back within two years.
What sets Benko apart from other property investors is his continued acquisition spree despite mounting challenges to his debt-driven strategy. However, the end of the era of cheap money triggered a drop in property valuations and a resulting cash crunch, leaving Signa particularly vulnerable due to its convoluted structure.
To secure short-term liquidity of up to €600 million, Signa engaged in frantic talks with various financiers including Mubadala Investment Co., Saudi Arabia’s Public Investment Fund, Attestor Capital, and Elliott Investment Management. However, the complexity of Signa's structure and the tight timeframe for a deal proved insurmountable.
The fallout from Signa's insolvency is likely to further damage the commercial real estate sector in Europe, potentially leading to a fire sale of assets and even lower valuations. Nevertheless, the financial contagion is expected to be limited. Signa's exposure primarily lies with banks that provided funding for acquisitions and construction work on development projects, with the loans secured against the properties. Therefore, banks may be well-positioned to recoup their losses.
The rapid expansion of Benko's empire prompted regulatory scrutiny, with the European Central Bank requesting several lenders that worked with Signa across different European countries to write down part of their exposure.
This insolvency filing brings a wave of uncertainty, halting construction work at the Elbtower project in Germany and other sites, as well as potentially leading to the closure of Signa's Galeria department stores in dozens of cities. In Austria alone, 390 affiliated companies are associated with Signa Holding, heightening concerns of a potential domino effect.
Bondholders of Signa Development, the only publicly-listed bond within the group, are evaluating potential breaches in financing terms after the unit revealed owing hundreds of millions of euros to other Signa entities. The downgrade protection measures designed to safeguard bondholders from Signa's broader troubles proved inadequate, as highlighted by Fitch Ratings. Consequently, the company's €300 million notes maturing in 2026 are currently indicated at 9.8 cents on the euro, a significant decline from just a month ago.
Amidst this upheaval, Thailand's Central Group could play a crucial role. The retail conglomerate has already secured control of Selfridges' operating company by converting a loan into equity. Central Group, owned by the Chirathivat family, is also partnered with Benko in Switzerland's Globus chain and Berlin's KaDeWe, and has reaffirmed its support for their European luxury operations.
Benko, who earned the trust of Europe's elite, including prominent investors such as Hans Peter Haselsteiner, Klaus-Michael Kuehne, and the Peugeot family, is now faced with the potential loss of their investments. Despite injecting almost €1 billion in fresh capital into the two largest Signa units just last year, Benko's backers were reluctant to provide additional funds.
Signa's collapse marks a significant setback for the mogul in his pursuit of brick-and-mortar retail success, which ultimately failed to meet expectations.