The embattled landlord at the center of Sweden’s property crisis might look to sell the company following a plunge in the share price.
Samhallsbyggnadsbolaget i Norden AB (SBB) has initiated a strategic review that could result in “a sale of the company, business segments, or specific assets, as well as other strategic transactions,” the board of directors said in a statement.
Selling new shares is not in the scope of the review.
A sale of the company would mark a major reversal of fortunes for SBB chief executive Ilija Batljan, who in seven years built up a US$13 billion portfolio of social housing and municipal properties across the Nordic region.
“The board believes that the underlying share value in the business is significantly higher than SBB’s current market value,” Batljan said by telephone. “Because of this you have to look at the options that maximize shareholder value.”
Key to SBB’s aggressive growth had been a debt splurge that relied on cheap financing on the bond markets.
However, with bond yields — and hence borrowing costs — jumping higher, the company’s US$8 billion debt pile suddenly became unsustainable. Facing calls from investors and credit rating firms to cut leverage, the firm pledged to sell 6 billion kronor (US$554.4 million) of assets to shore up its balance sheet.
However, the efforts to conserve cash did not go far enough, which Batljan also acknowledged.
The target of 6 billion kronor “is very little in relation to a balance sheet of 160 billion kronor,” he said.
It is an assessment shared by the companies responsible for SBB’s public credit ratings. This month has seen the landlord stripped of its investment grade credit status — a vital tool to unlock cheap financing — at both S&P Global Rating and Fitch Ratings.
The move by S&P on May 8 sparked panic among investors and led to a 40 percent slump in the share price. SBB was forced to postpone its dividend and scrap plans for an emergency sale of shares to shore up liquidity.
SBB’s “current financial constraints stem from receiving forms of deferred payments for assets devolved from the group, rather than immediate cash proceeds to deleverage,” Fitch said after the market closed on Friday, having cut the landlord’s rating one step to “BB+.”
“What has led to the situation is the level where the company’s shares are traded,” Batljan said. “[SBB’s] market value deviates very strongly from the intrinsic value of our equity.”
“If we sell the entire company, we will want a very good price,” he added.
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