Selfridges’ new owners take on extra £1.7 billion of debt

Central Group and Signa Holding, the Thai and Austrian owners of Selfridges, take on extra £1.7 billion of debt in a strategy that could significantly increase investment returns.

The London branch of Bangkok Bank has provided the loan, secured against the freehold of the retailer’s London flagship department store. Selfridges said the loan was provided to "release capital" for the acquisition, but that this did not amount to the payment of a dividend to its new owners.

Another large loan, the size which has been redacted in corporate filings, has been provided by Swiss lender EFG Bank and secured against Selfridges’ Exchange Square location in Manchester city centre.

The Selfridges Group portfolio, which comprises 18 stores under four names; Selfridges in England, Brown Thomas and Arnotts in Ireland and De Bijenkorf in the Netherlands, was last year integrated with Central and Signa's combined existing portfolio of 22 luxury department stores.

Last September, Central Group unveiled its luxury strategy to achieve new heights as an international luxury department store leader. The group announced that its two-part strategy includes developing and expanding a collection of iconic stores in major tourist cities in partnership with luxury brands.

It added that it will works closely with some of the world’s most influential brand conglomerates such as LVMH, Kering, and Richemont to uplift the luxury assortment, store image and shopping experience.

As part of the strategy, several store transformation programmes and new developments are ongoing in multiple countries. At Selfridges Oxford Street, a redevelopment of the under-utilised hotel, car park and mews is being assessed to create additional value to its marquee asset.

Another area of the group's luxury strategy is its plans to become a leading e-commerce platform and partner of choice for luxury and fashion brands with global reach.

The financial details of the transaction were not publicly disclosed but reports suggest that the Westons had placed a £4 billion price tag on the group when it was put up for sale. The Weston family also divided Selfridges into separate trading and property companies.

The level of debt is reportedly significantly higher than the £550m loan previously provided by HSBC to the Westons, which was also secured against the flagship premises. The increasing debt burden often results in high rent being charged, with the business now potentially facing higher costs and squeezed profit margins.

Injecting more debt into a business also reduces the equity contributed by the owners. As a result, the returns of the owners can be significantly more if the overall value increases.