Selfridges has been financed by the Thai and Austrian owners. This is a high-risk strategy that could increase investment returns.
According to company filings, loans were booked through a variety of new trading entities and property entities by Tiangchirathivat & Rene Benko when they took over the 114-year-old Oxford Street stalwart last fall.
Bangkok Bank’s London branch provided a loan in the amount of PS1.7bn, which is secured by Selfridges’ flagship London location.
Selfridges stated that the loan was given to “release capital” to finance the acquisition but did not include the payment of dividends to its new owners.
EFG Bank, a Swiss lender, provided another large loan. It was secured against Selfridges Exchange Square in Manchester.
In a deal worth PS4bn, Mr Chirathivat and Mr Benko’s Signa Holding defeated deep-pocketed rivals like the Qatar Investment Authority to buy Selfridges from Canada’s Weston family.
Selfridges was also split up by the Weston family into separate trading companies and property companies.
However, the debt level is much higher than the PS550m loan that HSBC provided to the Westons. This loan was also secured against the Oxford Street premises.
Rent is often charged to “propcos” when the debt burden of a “propco” increases. This can lead to higher costs for trading companies and squeezed profit margins.
The equity of the owners is also reduced by increasing the amount of debt a company takes on. The owners’ returns can be much higher if the overall value rises, similar to purchasing a house with a large mortgage.
However, the strategy leaves business owners exposed to a fall in business value. There is less equity buffer to protect against a trading downturn.
Similar strategies were used by the billionaire Issa brother to buy Asda. The supermarket’s owners were able to achieve a 20-fold return in less than a year by investing just PS800m equity in a business worth PS6.8bn.
However, sources close to Selfridges said that the comparison was not valid and that the debt against department stores had been significantly lower.
The upmarket nature of the retailer makes it more protected from the wider malaises on the high-street.
Despite the current cost of living crisis, the luxury goods market has been resilient. LVMH, a French giant, recently admitted that champagne sales were so strong that it warned about shortages.
Selfridges spokesperson said that the company enjoyed the best Christmas in 2022 and is optimistic about 2023. Because customers visit Selfridges for the convenience and experience they get from our stores, digital or otherwise, it is a unique operating environment.