Debts may force House of Fraser into fire sales: The Fayed brothers need cash, write Jason Nisse and Patrick Hosking

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The Independent Online
THE Fayed brothers are considering a series of fire sales from their House of Fraser department stores group, including the Barker Centre in Kensington and the Harrods Depository at Barnes, to shore up a seriously overstretched financial position.

According to Companies House records, House of Fraser, which owns Harrods of Knightsbridge, has pounds 650m of debts, and has made losses in each of the last four years. One of its main subsidiaries appears to have debts far in excess of its assets. Last week the group was forced to sell its 10 per cent stake in Sears at a substantial loss in an effort to raise cash.

A banker with a large exposure to the company said he was concerned about the financial position of House of Fraser. 'I'm not saying we're going to call in our loans tomorrow, but we're monitoring the position closely and we're hoping there will be some good news,' he said. The bank with the largest exposure is believed to be Midland, said to be owed pounds 100m, closely followed by Royal Bank of Scotland, Credit Suisse, Toronto Dominion, Deutsche Bank and Dresdner Bank.

A pounds 290m management buyout of all the House of Fraser stores, with the exception of Harrods, which was being backed by Electra Investment Trust, has fallen through due to lack of support from the investment community.

Michael Cole, the director of communications for House of Fraser, said that the sale of the group was 'something dreamed up by the City'. However, a sale memorandum exists, and a proposal was put together by a management team led by James Walsh, the finance director. One financier approached to back the deal said: 'It made no sense. There had to be large cost cutting to make the deal viable and then we could see no growth from the operations.'

A source with intimate knowledge of House of Fraser said the Fayed brothers had also been trying to sell the Barker Centre, the shops and office complex in High Street Kensingon, for at least three years, hoping to receive more than pounds 200m.

Attempts to sell the Harrods Depository at Barnes fell through after English Heritage, the body that rules on listed buildings, refused to countenance a change to the river frontage - a landmark in the Boat Race.

Mr Cole denied that any estate agents had been instructed to find buyers for either property.

House of Fraser has to repay more than pounds 700m of debts in the next two- and-a-half years. In the most recent accounts available, to 21 January 1992, the group had over pounds 1bn of debts - pounds 251m of which was repayable by January this year. Of the remaining pounds 771m, pounds 150m is repayable by January 1994, pounds 100m by January 1995 and pounds 511m by January 1996. Of the total, pounds 425m was secured on a subsidiary, House of Fraser Property Investment (HoFPI), and pounds 186m on other leasehold properties.

House of Fraser made a loss in that year of pounds 25.9m, similar to that made in the previous year. Within that, however, Harrods made a profit of pounds 13.9m. Mr Cole said House of Fraser's debt presently stood at less than pounds 650m: 'The financial situation is extremely satisfactory.'

However, the situation at HoFPI seems acute. At 21 January 1992, it had long-term debts of pounds 312m made up of a pounds 186m loan from a consortium of banks led by Samuel Montagu, and pounds 127m lent by other house of Fraser companies. Its assets included buildings, including the Barker centre and the Carlton Highland hotel in Edinburgh, valued at pounds 122.5m in October 1991 by surveyors Healey & Baker. They also included a 9.9 per cent stake in Sears, valued at pounds 216m.

The Sears stake was sold for pounds 156m, generating a loss of pounds 60m. Since HoFPI's capital and reserves were just pounds 29.95m, the effect of this would have been to leave the company with a net deficiency of pounds 30m.

Mr Cole denied HoFPI was in difficulties but declined to elaborate on how its finances might have changed.

Though economic recovery should help the department stores sector, John Lewis Partnership recently reported an 8 per cent decline in pre-tax profits to pounds 71.4m, and Stewart Hampson, its chairman, warned that the group faced another year of falling profits.

(Photograph omitted)

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