(Bloomberg) -- Swedish landlord SBB is in talks with investors on potentially taking a stake in its residential unit Sveafastigheter, while an initial public offering for the business remains an option.
Sveafastigheter is “still on two tracks” when it comes to broadening the shareholder base, Chief Executive Officer Leiv Synnes said in an interview following the company’s second-quarter report on Wednesday. “We are making ready to launch an IPO but discussions are ongoing with a couple of large institutions regarding a private transaction.”
Samhallsbyggnadsbolaget i Norden AB — as the company is formally known — continues to grapple with an acute funding crunch, having been caught wrong-footed by a sharp jump in borrowing costs amid a spate of costly credit-rating downgrades.
To shore up the company’s finances, Synnes plans to split the group into three along its community, education and residential portfolios. The last, carved out as Sveafastigheter AB, is weighing a potential stock-market listing or a strategic partnership sometime in 2024. Whatever the outcome, SBB will only sell up to 49% of the shares in the unit, according to comments by Synnes on an earnings call.
“All the credit lines are in place at Sveafastigheter,” the CEO said by phone, confirming an earlier report by Bloomberg News. The unit is “expected to get additional credit lines” when there is a change of ownership, he added.
SBB’s shares gained 3% at 10:50 a.m. in Stockholm having initially traded down, while its bonds maturing in August 2027 were marked 1.1 points higher at a bid price of 76.18 euro cents, according to data compiled by Bloomberg.
“The company’s negative operating cash flow and weakening interest coverage are credit concerns, while the continued reliance on disposals is subject to large uncertainty,” credit analysts at Danske Bank said in a note to clients.
In July, SBB saw its credit rating at S&P Global Ratings cut to “selective default” after existing bondholders were asked to exchange their holdings into new senior notes at the residential entity. Sveafastigheter issued bonds for 1.7 billion kronor ($167 million) in early July, and in connection with the transaction, SBB repurchased bonds for 2.2 billion kronor, with a nominal value of 3.9 billion kronor.
Operationally, the company reported net operating income of 720 million kronor in the second quarter, missing the average of two analyst estimates, while its loss for continuing operations narrowed to about 2.27 billion kronor from about 9 billion kronor.
SBB also said it plans to cut costs in its central functions related to its transformation by as much as a half by the end of next year.
The stabilizing finances may now help the company navigate a potential initial public offering for the housing unit in the final quarter of the year — although the window for capital raising among international investors is seen as fairly narrow given the uncertainty resulting from November’s election in the US.
In addition, SBB’s Nordiqus education unit that is now majority owned by Brookfield announced an 8.6 billion kronor refinancing of debt on Wednesday via privately placed bonds in the US.
“Our strategy is to take investment-grade funding costs through subsidiaries such as Nordiqus,” Synnes said.
SBB has more than $500 million worth of bonds maturing in the final three months of this year and the first quarter of 2025, according to data compiled by Bloomberg. The value of its properties fell by 3.8 billion kronor, and combined with divestments, brought the value of its property portfolio to about 54.4 billion kronor at the end of last quarter.
“By choosing to amortize rather than refinance loans as they mature, we delay the impact of the higher interest rate on SBB’s interest expenses,” Synnes said in the report, adding by phone that “Our plans for new debt, asset sales and selling shares in Sveafastigheter will be enough to meet bond maturities for the whole of 2025.”
--With assistance from Anton Wilen and Christopher Jungstedt.
(Updates with further CEO comment, as well as share price, analyst remarks.)
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