German retail giant and Thomas Cook majority shareholder, Arcandor, risks sinking into insolvency by this Friday after the German government rejected its application for credit guarantees, saying it would need to make an improved request for an emergency loan.
The retailer, which owns 53 percent of Thomas Cook, is today holding emergency talks with its owners and creditors to size up the possibility of increased commitments”.The government had earlier rejected a request by Arcandor for a €650m credit guarantee from a new fund set up to help companies struggling as a result of the economic downturn.
Officials turned down an alternative request, saying Arcandor stemmed from problems that resulted long before the financial crisis. It instead called on its shareholders to supply more money.
Thomas Cook meanwhile has reiterated that it is “completely ring-fenced” from the current difficulties of Arcandor.
A Thomas Cook spokesman said: “Arcandor is not our parent company and we are not associated with its financial business at all. thomas cook is an independent company listed on the London Stock Exchange and we are completely ring-fenced with totally different credit lines.”
German Economic Minister Karl-Theodor zu Guttenberg said the government would not loosen its demands on the Arcandor. He said he hoped to receive an improved bid, but pointed out that any aid would be linked to a radical restructuring of the group.
Arcandor struggled back from the brink of bankruptcy in late 2004, but its problems were compounded by the global recession. It applied for state aid in May.
The European Commission last week warned warned Berlin it considered Arcandor to be a victim of past management mistakes, not of the recent credit crunch, and that Brussels would deem any government guarantees illegal state aid.