Austrian real estate mogul Rene Benko and his Signa Group, one of Europe’s biggest real estate groups, may be in lethal troubles. This is no surprise given the new economic environment of high interest rates, restrictive lending and stagnating real estate prices. Over the past two decades, Signa Group has grown explosively. Now the German rating agency Creditreform has suspended the rating for Signa Group, which is a new disaster news. Insolvency is no longer ruled out.
The Signa Downgrading
In a significant development, the German rating agency Creditreform unexpectedly downgraded the rating of Rene Benko‘s Signa Prime Selection AG to “n.r.” – not rated. This move seems to signal a critical moment for one of the largest European real estate groups. The agency has taken this step because the most recent rating of A-/negative is no longer current, and the examination of objections and statements from Signa Prime Selection is ongoing in the context of a rating action.
Creditreform has been assigning ratings to Signa Group since 2017, making it intimately familiar with the company’s structure and finances over many years. Apparently, the rating agency posed questions to the company or requested documents for which it did not receive satisfactory answers within the specified time frames.
Since 2017, the Signa rating has plummeted from “A+” to “A” and further down to “A-” in 2022. Just recently, Signa recently raised €400 million euros from its major shareholders. Insiders have already interpreted this move as a rescue operation.
The Negative Consequences
Ratings to be used by banks in their credit risk analyses and presented to external auditors, as is the case in the ongoing ECB examination of banks that provided loans to the Signa Group. The suspension of the rating raises concerns among creditors who rely on credit ratings for their analyses. The calculation of credit interest is based on the base rate and the risk premium. The worse the rating, the higher the interest set for that credit.
Banks must continually assess their loans. If they perceive a risk of loans becoming “Non-Performing,” they must allocate provisions, negatively affecting their equity. If the Austrian Raiffeisen banks, as rumored, hold between half a billion and two billion euros in Signa loans on their books, the impact on their equity is substantial.
Even if the suspension of the Signa rating has no immediate impact, the company seems to face significant challenges in refinancing in the future. Insiders assume that Signa will continue to need fresh money in the future and this downgrade may be lethal. At present, insolvency is no longer ruled out.
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