Chill winds buffet Iceland's foreign investments

By Mark Potter

LONDON (Reuters) - An Icelandic connection, once viewed as a potential prelude to a bid, is now a liability as companies from New York through London to Helsinki face uncertainty due to the financial crisis in the Atlantic island.

For a country of just 300,000 people, Iceland spread its business interests far and wide during the era of cheap finance.

Led by Baugur, the investment group that has built up a retail empire in Britain spanning Hamley's toy store and House of Fraser department stores, Icelandic firms have invested in businesses as diverse as New York department store Saks, Finnish insurer Sampo and English football club West Ham.

But a crisis which has seen the country take over its second and third-largest banks has put a question mark over the stakes, and the companies in which they have been made.

Investment firm Exista also said it saw no need to sell off other assets, such as a near 9-percent stake in Norwegian insurer Storebrand, even as it offloaded its 20 percent stake in Finnish insurer Sampo in a cut-price share sale.

Baugur, meanwhile, has said it does most of business with international banks and would not be hit if Icelandic banks sold assets, while several of its portfolio of companies have also said they are unaffected.

"In theory, provided you don't need to raise any more finance...then they're absolutely right," said Gavin George, retail partner at accountants Ernst & Young.

But if they did need money, Baugur's companies could find it both difficult and expensive.