Hong Kong, Korea State Funds Emerge as Investors in Benko Empire

This content was published on February 13, 2024 - 14:02

5 minutes

(Bloomberg) — The Hong Kong Monetary Authority and Korea’s National Pension Service are among the equity investors that stand to take a hit from the insolvency of Signa’s luxury real estate unit, according to people familiar with the matter.

The investments by the Asian state funds in Signa Prime Selection are managed by Madison International Realty, two people with knowledge of the transactions told Bloomberg, asking not to be named when discussing private matters.

The undisclosed positions represent less than 0.01% of managed assets for each of the behemoths, but nevertheless demonstrate tycoon Rene Benko’s success in luring capital from sovereign funds, insurers and billionaire families around the world to finance his sprawling property empire. Signa’s partners include Brazilian industrialists, Middle Eastern wealth funds and one of Thailand’s biggest retailers.

Over the course of two decades, Signa Prime took advantage of low interest rates to build one of the largest real estate portfolios in Europe. At its height, it held more than €20 billion ($21.7 billion) in luxury holdings, including the Selfridges department store in London. But rising financing costs and a liquidity crunch forced it into insolvency at the end of last year.

Benko’s early backers were predominantly high net-worth European investors such as Austrian construction tycoon Hans Peter Haselsteiner and German transportation magnate Klaus Michael Kuehne. But as Benko’s empire grew, he turned to some of the world’s most sophisticated real estate investors for additional funding, including Singaporean sovereign wealth fund GIC Pte and the Saudi Public Investment Fund. Some of their investments were made directly in Signa companies, while others came via bonds or equity-like profit participation rights.

The Hong Kong Monetary Authority controls a $514 billion war chest, known as the Exchange Fund, which invests in bond, equities and various alternative investments. The fund, which is considered the last line of defense for the city’s currency peg to the US dollar, owns the Signa stake via MIELI II Sarl, a Luxembourg-registered company, the people said.

According to the minutes of a July 2023 shareholder meeting, MIELI II Sarl held a stake of about 4.5% in Signa Prime, while South Korea’s national pension fund, which is invested via MIEPPI Sarl, held about 2% of shares. The NPS manages more than $737 billion in assets. Both shareholdings were diluted from their initial stake as a result of a 2022 capital increase.

The Hong Kong wealth fund’s shares were valued at €255 million at the end of 2022, while NPS’s stake was worth €114 million, according to Signa’s estimates. Shareholders are usually among the first investors to take losses during an insolvency process.

Madison declined to comment on the nature or terms of their investment in Signa. Spokespeople for HKMA, NPS also declined to comment. Three spokespeople listed on Signa’s website have all left the company, which didn’t respond to questions sent to a group email address. A spokesman for Signa Prime’s insolvency administrator declined to comment.

Signa Prime is currently in the process of an Austrian insolvency procedure known as self-administration, wherein management retains control of the company as it restructures its debts. The unit’s challenge now is to get a majority of creditors to sign off on a restructuring framework by March 18 that will pay creditors at least 30% of their claims within two years.

The HKMA-backed fund first invested in Signa Prime in May 2019, buying up a 5% stake in the property unit for €166 million, according to company filings. MIEPPI, backed by Korea’s NPS, acquired its stake in 2020.

Both Madison-managed funds put options on their equity stakes, which are exercisable if there is “material breach” of existing agreements. Under the option, they were guaranteed the right to sell shares at a price that would represent a return on investment of between 9% and 12%, according to 2022 company filings.

Investors across the Signa group now face the challenge of protecting their existing investments. Signa Development, another property unit within Benko’s corporate structure, has secured a loan worth up to €25 million from shareholder Haselsteiner to carry it through the restructuring process. Signa Prime hasn’t received a similar offer.

Abu Dhabi’s Mubadala and Al Mirqab Capital, the private investment firm of Qatari Sheikh Hamad bin Jassim bin Jaber Al Thani, have both filed arbitration claims against Signa entities, demanding a total of more than €1 billion for breach of financial agreements.