(Bloomberg) -- Heimstaden Bostad AB has decided to pause payouts to protect its credit rating from further downgrades. S&P Global Ratings demoted the landlord to the lowest possible investment-grade rating at the end of 2023. 

The landlord won’t pay out dividends for any of its share classes, it stated in its full-year report. The decision “shows our firm commitment to support our credit profile and dedication to our investment grade rating,” Deputy CEO Christian Fladeland said in the report, which also noted a 8.5 billion kronor total comprehensive loss in the fourth quarter. That was driven by a -1.6% change in property values, primarily in Sweden and Germany. 

Heimstaden Bostad has said it’s considering raising money via a rights issue to defend its credit rating, which was lowered in December to BBB-. The company, whose portfolio consists of more than 160,000 homes, raised 1.2 billion kronor ($117 million) selling apartments last year, with a gross premium of 32%. It’s currently aiming to sell 20 billion kronor of residential units by the end of 2025, and this disposal program, according to the report, is ramping up according to plan.

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A rights issue may be a tough proposition for the landlord, given that one of its largest shareholders — Swedish pension fund Alecta — is seeking to renegotiate the shareholder agreement before it will partake in a capital raise. The pension fund, along with others, is under investigation by Sweden’s financial regulator for its investment in Heimstaden Bostad. The firm is engaged in “continued dialogue” with its owners around a rights issue, but the disposal program is the “key element” supporting the credit rating, Fladeland said via phone. 

“We consider the privatization plan as being fully sufficient to protect our rating,” he said, adding that as the transaction market has improved, the company could also consider selling larger chunks of the portfolio instead of letting go of residential units one by one. 

The pause on dividend payouts also has knock-on impacts for Heimstaden Bostad’s creditors, and its holding company, Heimstaden AB. The real estate firm is reliant on payments from Heimstaden Bostad shares in order to service its debts, especially since it sold an Icelandic portfolio last year.

To conserve cash, Heimstaden AB opted to defer payments on its Swedish krona hybrid bond, prompting a downgrade from Fitch Ratings on Tuesday. The ratings firm estimates that while its maturities are covered through 2026, Heimstaden AB will need to find new sources of liquidity in order to meet longer-dated debt. 

Bonds issued by Heimstaden AB due in 2026 plunged as much as 4.2 cents on the euro to 53.9 cents on Tuesday, according to data compiled by Bloomberg. 

 

(Adding Deputy CEO comments and info on Heimstaden AB)

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