 Karstadt is a household name in Germany |
Shares in KarstadtQuelle have fallen almost 20% on fears that the conditions of a loan needed to keep the retailer afloat may hurt the business. The firm is taking out a 1.75bn euro ($2.3bn; �1.2bn) loan to keep it going while it carries out a major overhaul.
Investors are worried about the terms of the loan which prohibit the company from paying dividends for two years.
The sluggish pace of consumer spending has eaten into sales and profits at Germany's largest retailer.
Financial package
The firm's shares fell 18% to 7.8 euros as details emerged of conditions which banks are demanding of Karstadt in return for providing a 1.75bn euro three year loan.
The loan is part of a financial package aimed at ensuring that Germany's best-known retailer can continue trading while it restructures its debt-laden operations.
The company is also planning to raise money by issuing new shares and selling a number of assets including some smaller department stores and its logistics arm.
Investors have expressed concern that the terms of the loan are too punitive and will restrict the firm's room for maneouvre at a crucial time.
Key conditions include a two-year freeze on dividend payments, restrictions on what acquisitions the firm can make and limits on its ability to issue new credit.
The retailer will have to meet specified earnings targets or its financial backers - a consortium of 16 banks - may withdraw their support.
The retailer is also required to provide assets - such as its 50% stake in Thomas Cook - as security for the loan.
"Investors should be cautious about KarstadtQuelle," a German analyst told BBC News.
"The banks have put a lot of pressure on the company and it has a big problem with its balance sheet."
Already public
Some investors have already expressed concern about the retailer's plan to issue 93 million new shares - thus diluting the value of existing shares - to raise 500m euros.
The company is also looking to raise 125m euros through a convertible bond issue.
KarstadtQuelle said all the details of the loan were known to investors when they approved it at an extraordinary general meeting last week.
"I am a little bit surprised about what is going on now," said KarstadtQuelle spokesman Joerg Howe.
"There are no new facts.
"If you are issuing a prospectus for issuing new shares, you have to describe every possible risk. These are not new risks we are describing."
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I am a little bit surprised about what is going on now... these are not new risks we are describing 
