René Benko’s Signa Group has filed for bankruptcy

Austrian real estate tycoon Rene Benko failed to save his Signa Group. The management of its subsidiary Signa Holding submitted an application to the Vienna Commercial Court on Wednesday to initiate restructuring proceedings, the company announced. The goal is to restructure a company that no longer has enough money to continue operating its activities. In other words, he is insolvent.

Liquidity problems

It has been known for some time that several companies in René Benko’s Signa Group are experiencing difficulties with liquidity. This became clear, for example, when work stopped on several large construction sites in Germany.

Discussions continued on how to rescue the Signa Group as a whole or in parts. Officials were said to be in discussions with financial investors who might be willing to inject funds. Rothschild & Co. had been tasked with finding these investors for weeks. But it seems that hopes have been dashed. One reason may be the complex structure of the group.

Disagreements between stakeholders

The German expert Arndt Goetz should have led the renovation process. He was also prepared to take on the chairmanship of Signa Holding’s Advisory Board and Shareholders Committee. However, his basic condition was that investors provide a mid-three-figure sum of one million to Signa Group.

The disputes are said to have arisen during negotiations over how to restructure the Signa Group out of court. Investors and managers had the impression that the company’s founder Benko did not want to be sufficiently involved in the restructuring. It is not clear to what extent he will be involved in the upcoming renewal. However, investors emphasize that the company’s founder must also make a contribution.

Signa Holding is an umbrella company that holds investments in other Signa companies. These companies include Signa Prime, which owns well-known properties in some central locations in Germany, Austria and Switzerland. Also part of the portfolio is Signa Retail, which brings together Benko’s department store businesses, such as the Globus department store.

Well-known co-investors

According to the latest situation, Banco itself owns about half of the share capital of Signa Holding. Other investors include Ernst Tanner, Chairman of the Board of Directors of Lindt & Sprüngli (3 percent), Hans Peter Hasselsteiner, founder of the construction company Strabag (15 percent), and Arthur Eugster, owner of the Swiss coffee machine manufacturer Eugster/Frismag. (11.5 percent). Torsten Toler, founder of the Fressnapf pet food chain, owns a 4.5 percent stake, and the Swiss-Brazilian entrepreneur family Ardoini Kurani owns 14.5 percent. These investors’ capital will likely be lost.

The insolvency administrator has an opinion

Signa Holding aims to go through a restructuring process with self-management. This means that the previous management can in principle continue to run the company, but the insolvency administrator checks the expenses and has the final say. In order for the restructuring to take place with self-management, Cigna Holding must submit a restructuring plan, which must be approved by the majority of creditors within 90 days. With this restructuring plan, Cigna Holdings will avoid liquidation, which means it can be restructured and continued.

However, certain requirements must be met for the restructuring process to take place. By law, Cigna Holdings must promise creditors that they will receive at least 30 percent of their money within two years. This can only be achieved if the company has enough assets to sell, which is currently an open question.

In addition, according to Austrian insolvency experts, a restructuring plan almost always requires the company’s owners or other investors to inject new funds, otherwise the chance of a successful restructuring is slim. In other words: Signa Holding will still need new money – whether that comes from Benko and his fellow shareholders or from outside investors. Otherwise the company will be liquidated in normal bankruptcy proceedings.

Last year, Cigna Holdings incurred a loss of 504 million euros. This was primarily due to the €1.1 billion write-down that had to be made in other Signa businesses. For example, Signa Prime suffered a loss of around €1 billion. The company also has to repay 200 million euros in bonds at the end of November.

Are there more bankruptcies coming?

The question is currently open as to whether other Signa Group companies will have to file for bankruptcy. Signa is made up of many individual companies, some of which have mutual financial obligations that are difficult to understand. According to credit specialists, the managing directors of these companies must now check whether there is insolvency.

The aggressive expansion of the past few years was the eventual downfall of the Signa Group. This strategy has worked as long as interest rates remain low. A year and a half ago, central banks began tightening monetary policy.

As a result of rising interest rates, Signa Prime in particular has had to endure a decline in the value of its holdings. At the same time, credit costs were rising, and in the end the retail business did not go as well as the group’s administrators had hoped.

A quick overview of René Benco’s Signa Collection