The chief executive of Icelandic retail company Baugur, part of a bidding group for the supermarket Somerfield, is facing fraud charges, the BBC reports.


Jon Asgeir Johannesson and four others face 40 charges, related to fraud, breaches of accounting rules and corporate law, Iceland police have said, the broadcaster said.


The five facing allegations have denied all charges. A spokesman for Baugur told the Sunday Times at the weekend that the charges were politically motivated.


More details would be released shortly, the National Commissioner of the Icelandic Police said.


The charges follow a three-year investigation, which began with searches on Baugur's offices and included investigations in the Faroe islands and Luxembourg, the police said.


A spokesman for Baugur told the Daily Telegraph that all the individuals charged "strenuously deny any wrongdoing and the company stands by them".


He added that the charges had been brought against the individuals in question, not Baugur itself. Mr Johannesson is said to own 70% of the company.


Baugur, which already has a big UK retail presence, is part of a consortium in talks with Somerfield.


Baugur and Iranian property tycoon Robert Tchenguiz confirmed earlier this year they are discussing a deal with Somerfield.


If the deal was successful, Baugur would become the fifth-biggest food retailer in the UK, with a share of about 7.6%, behind Morrison, which bought Safeway in 2003.


However, newspaper reports on Sunday speculated that the charges could scupper the deal. One report suggested that Baugur had already offered to withdraw from the consortium.


Baugur already owns 5% of Somerfield and is thought to be keen to merge the operations of Big Food group, which it bought last year, with the Somerfield group, which has the Kwik Save chain under its umbrella.


In common with other major retailers the group, which runs 664 Somerfield stores and 560 Kwik Save sites, has suffered a drop in like-for-like sales as consumer spending slows down.