SBB, the landlord at the center of Sweden’s property crunch, is selling 2.4 billion kronor ($228 million) of shares in a new subsidiary to Morgan Stanley, taking a step toward narrowing a financing gap.
(Bloomberg) — SBB, the landlord at the center of Sweden’s property crunch, is selling 2.4 billion kronor ($228 million) of shares in a new subsidiary to Morgan Stanley, taking a step toward narrowing a financing gap.
Samhallsbyggnadsbolaget i Norden AB — as SBB is formally known — is racing to plug a cash shortfall of 8.1 billion kronor over the next 12 months after amassing an unsustainable debt pile during the cheap-money era. With bond markets and bank lending all but closed, the company is seeking to raise fresh funds from asset sales and new investors. In the wake of a downgrade to a junk credit rating in May, a sale of the entire company is also up for consideration.
SBB is at the epicenter of the broader turmoil in real estate markets, as higher interest rates depress valuations around the world. The company’s troubles risk becoming a broader issue in Sweden as it owns many public-sector buildings like nursing homes and schools.
The latest capital raise will see the landlord issue preference shares via a newly created subsidiary called SBB Residential Property to a fund managed by Morgan Stanley Real Estate Investing, according to a statement released at 2 a.m. local time on Friday. The Stockholm-based firm will control and operate the new unit that consists of apartments in Sweden valued at 6.2 billion kronor.
The company’s shares, which have plunged more than 90% since hitting a peak in late 2021, rose 0.9% in morning trading in the Swedish capital after initially climbing as much as 5.5%. Its senior unsecured bonds due in November 2029 gained 0.9 cents on the euro to 59.2, according to data compiled by Bloomberg.
Read More: Troubled Swedish Landlord SBB Enters Talks With Bondholders
Reactions from credit analysts were mixed. “Positively, it will provide SBB with a well-needed liquidity boost and give the company some time to execute on its ongoing strategic review,” Louis Landeman, an analyst with Danske Bank A/S in Stockholm, said in a note to clients. But the more complex structure could mean risks for some SBB bondholders increase, he added.
What Bloomberg Intelligence Says:
SBB’s 2.36 billion-kronor preference share sale — like some of the asset sales that have been completed so far — is a step in the right direction on liquidity, given the issuer’s own disclosed 12-month cash shortfall of just over 8 billion kronor. More significant action, such as repayment of the 14.5 billion-kronor inter-company loan to EduCo, may be needed to comprehensively address near-term funding needs.
—Tolu Alamutu, BI credit analyst (click here to read more)
It’s not the first time SBB has turned to a residential property subsidiary to shore up its finances. The landlord earlier this year spun out Neobo Fastigheter AB and has said it’s planning to do the same with Sveafastigheter Bostad Group AB.
SBB still needs at least 6 billion kronor in cash to meet its funding needs over the next 12 months, according to recent analysis by research firm CreditSights Inc. Last week, the landlord said it had entered into talks with a large group of bondholders as part of its refinancing efforts.
The transaction with Morgan Stanley provides “further flexibility” for the ongoing strategic review, Chief Executive Officer Leiv Synnes said in the statement. Closing of the deal is expected in the middle of next month.
(Updates with share and bond prices, further context)
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