Iceland 'plans stakes in UK stores'

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Iceland is understood to be drawing up a scheme that could see a deal between its nationalised banks and Baugur, the investment group which owns a raft of UK retailers.

If the debt-for-equity swap goes through, the Icelandic government and creditors to its stricken banks would own shareholdings in Baugur firms such as House of Fraser, Hamleys, Karen Millen and frozen food chain Iceland, according to the Financial Times.

It is thought that Iceland is now opting against selling Baugur's assets as it does not believe it can get a good price for them in the current market.

Baugur had substantial amounts of debt held with Iceland's failed banks and some of the Icelandic banks that have been nationalised, such as Glitnir, were co-investors in the group, which has led to fears over the future of Baugur's sizeable UK retail assets.

It is thought that around 55,000 people work for Baugur-controlled firms in the UK.

Its retail portfolio includes a substantial stake in House of Fraser, as well as shares in listed companies such as Debenhams, Moss Bros and French Connection.

It also had a stake in collapsed chain Woolworths.

But the Icelandic restructuring which is being looked at is believed to be dependent on the country unfreezing the UK assets of its failed bank Landsbanki, which the British Government seized under the anti-terrorist law.

The move was made after Iceland failed to guarantee deposits of the bank's UK savers. Iceland is now reportedly considering taking the UK Government to court.