Sweden’s property crisis worsened after one of the country’s biggest commercial landlords took steps to conserve cash and put its focus on selling assets to plug a funding gap.
(Bloomberg) — Sweden’s property crisis worsened after one of the country’s biggest commercial landlords took steps to conserve cash and put its focus on selling assets to plug a funding gap.
SBB postponed a dividend and scrapped plans to sell shares in the wake of a credit rating downgrade to junk.
Like many other Swedish property companies, the landlord — formally named Samhallsbyggnadsbolaget i Norden AB — is scrambling to refinance debt, but higher interest rates and investor concerns have closed off many options.
“This will be yet another negative overhang for the sector,” even if SBB’s situation doesn’t directly correlate with its Swedish peers, said Molly Guggenheimer, an equity strategist at Danske Bank in Stockholm.
Sweden’s property firms face the challenge of refinancing over $40.8 billion of maturing bond debt over the next five years, a quarter of which falls due in 2023.
With Europe’s real estate industry buffeted by surging interest rates, Sweden has been viewed as the canary in the coal mine because much of that debt is short term and floating rate, making it particularly exposed to the end of the era of cheap money.
A 15% decline in residential home prices in Sweden — one of the world’s worst property routs — exacerbates the challenges facing the real estate sector more broadly by making sales less lucrative.
But with banks tightening lending and bond markets all but closed for lower rated issuers, few options are available.
Saddled with a $8.1 billion debt pile, SBB said it was seeking to push back its dividend payment date until next year’s shareholders meeting “at the latest.” The Stockholm-based company also said it will not carry out the issuance of 2.6 billion kronor ($260 million) worth of new class D shares.
In a sign of the tension, the statement was issued close to 11 p.m.
local time on Monday following an emergency meeting of SBB’s board.
The shares fell as much as 13.7% on Tuesday, reaching their lowest level in five years and extending the decline since the beginning of 2022 to 87%.
SBB’s credit rating was cut to junk by S&P Global Ratings, which warned a further downgrade is possible.
The ratings firm said it no longer believed the landlord could meet its thresholds for investment-grade debt. The stock dropped 20% on the back of the news.
The latest developments are a blow tor Chief Executive Officer Ilija Batljan, who has repeatedly assured investors he would take action to defend the company’s credit profile.
SBB derives most of its rental income from regulated residential properties in the Nordic region.
The company’s board of directors said it was canceling the share sale because the stock’s drop “made it impossible to carry out the rights issue at its announced terms.” The latest prices put the stock at less than half of the subscription price of 16 kronor per share.
Analysts at Arctic Securities AS welcomed the plan by SBB to improve liquidity following the downgrade, saying the moves are “as a whole positive” for shareholders, analyst Michael Johansson said by phone, adding that the dividend was approved so “their only option is to pause it.”
The downgrade adds to the company’s costs by triggering so-called “step-up” coupons on its existing debt.
That adds up to an additional 285 million kronor in financing costs.
S&P said it could lower SBB’s rating further if the landlord is “unable to secure sufficient funding sources in the next couple of quarters to sustainably cover its short-term financial obligations,” according to a statement on Monday.
–With assistance from Divya Balji, Anton Wilen, Christopher Jungstedt and Jonas Ekblom.
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