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Swedish landlord SBB rules out state support as cash dwindles
Global Banking & Finance Review®
Company
By Marie Mannes
STOCKHOLM (Reuters) -Swedish property group SBB on Friday ruled out state support as it sought to repair its battered finances, marred by a heavy loss and dwindling cash.
The $13 billion group, which owns swathes of property across Sweden including hospitals and schools, racked up a pre-tax loss of 11.1 billion Swedish crowns ($1.09 billion) in the second quarter, while its cash reserves shrank.
Long popular with investors, SBB is at the epicentre of a property crash that threatens to engulf the Nordic state’s economy.
“I don’t think we need general support from the state,” CEO Leiv Synnes told Reuters. “Our situation is not alarming.” Synnes said his focus was on improving liquidity.
As of June 2023, the company had around 1.9 billion Swedish crown of cash and equivalents, less than half the level in December, when cash stood at 4.85 billion Swedish crowns.
SBB said speculation about its future had hurt its ability to secure new funding. Synnes said he was in talks about selling further property, but declined to be drawn on whether there was a buyer in sight for the entire group.
The company said earlier this year it was looking finding a buyer of all or parts of its business.
On Friday it failed to convince investors, with the company’s stock tumbling as much as 12%.
In a call with analysts, Synnes declined to provide full details of property deals. One analyst who pressed for more information was cut short in the roughly 30-minute call.
“When management were questioned on the book value versus disposal value of properties, Investor Relations cut off the analyst,” said Fraser Perring of Viceroy Research, a short-seller in SBB that has published research critical of the company.
“This is ridiculous, as it’s a key measurement for whether SBB are in default with their bonds, or if there is any equity value left for investors.”
SBB shares are subject to more short-selling – a bet that the stock price will drop – than any other Swedish company, data from the financial regulator shows.
The group built up vast debts buying public property including social housing, government offices, schools and hospitals.
It is now scrambling to salvage its finances after recently seeing its credit rating downgraded to junk, with some looking at the government as a potential saviour. Its shares have lost more than 90% of their value since peaking in 2021.
Hit by soaring interest rates, it was forced to cancel its dividend and scrap a share issue. Last month it said its founder, former social democrat politician Ilija Batljan, was stepping down as CEO.
SBB’s problems are unfolding as Sweden struggles to contain a wider property crisis, with high debts, rising interest rates and a wilting economy producing a toxic cocktail for Sweden’s commercial property companies.
Problems in the industry, as well as alarming investors, have prompted the Swedish central bank to issue several warnings.
Earlier this year, it cautioned that problems in heavily indebted commercial property companies could spill over and hit the economy more widely, as well as the stability of the financial system itself.
It has also warned of a domino effect on banks, who have lent ever more to property companies, as well as the risk that such firms are forced to sell large numbers of buildings, sending prices into a spiral.
Other Swedish property companies struck a downbeat note on Friday when they published financial results.
Castellum revealed a drop in the value of properties, while Corem cut its debt but warned of falling property prices. Oscar Properties pointed to a challenging credit market.
($1 = 10.2285 Swedish crowns)
(Reporting by Marie Mannes in Stockholm; additional reporting by Chiara Elisei in London; editing by John O’Donnell and Jan Harvey)
A financial crisis is a situation where the value of financial institutions or assets drops significantly, leading to a loss of confidence in the financial system. This can result in bank runs, stock market crashes, and economic downturns.
Debt financing is the process of raising capital by borrowing money, typically through loans or issuing bonds. Companies use debt financing to fund operations, expand, or invest in new projects.
Property investments involve purchasing real estate with the expectation of generating income or appreciation in value. This can include residential, commercial, or industrial properties.
Cash management refers to the process of collecting, managing, and investing cash to ensure a company has sufficient liquidity to meet its obligations. It involves monitoring cash flow and optimizing cash reserves.
Corporate strategy is the overall plan for a company to achieve its goals and objectives. It involves decisions about resource allocation, business direction, and competitive positioning in the market.
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