(Bloomberg) -- Struggling Swedish landlord SBB took a major step toward stabilizing its finances with a cash injection and a plan to divide up its operations, sending a signal that money is available despite the country’s real estate crisis.
Samhallsbyggnadsbolaget i Norden AB — as the company is officially known — will largely close its near-term funding gap in a deal that will raise 8 billion Swedish kronor ($720 million). The shares surged as much as 40%, and the company’s bonds maturing in January 2025 jumped 6 cents on the euro, according to data complied by Bloomberg.
A deal with Canada’s Brookfield Asset Management Ltd. is the cornerstone of a break-up plan announced on Sunday by SBB Chief Executive Officer Leiv Synnes, who replaced embattled founder Ilija Batljan in June. While the agreement is complex, it shows that value can be extracted despite bonds markets being all but closed to the sector.
“We will need to raise more capital in the coming year to meet our commitments,” Synnes told Bloomberg. “This is a good step forward and will open up more possibilities later.”
SBB’s shares surged to pare its loss in the last 12 months to 66% and the bonds traded at a narrower discount.
Despite echoes of a crash in the 1990s that sparked a full-blown financial meltdown, Swedish officials have been hoping to contain the problems without widespread intervention. That strategy appears on more stable ground after SBB’s announcement.
The struggling landlord became the epicenter of Sweden’s property meltdown after accumulating an $8 billion debt pile to amass a portfolio of schools, elderly care homes and other public-sector buildings. Backed by investment-grade ratings, the company was seen as a potential harbinger because numerous other Swedish landlords followed similar strategies, but with less debt than SBB.
What Bloomberg Intelligence Says:
“This may be seen as positive for short-term bonds, but as the CEO acknowledges, further action is required. Though a review has ended, there may still be questions about revenue generation and SBB’s ability to support existing debt in the medium term.”
— Tolu Alamutu, BI credit analyst
After being cut to junk status and facing a near-term funding shortfall of 8.1 billion kronor, the company initiated a strategic review that included potentially selling itself. That process has now been concluded and SBB will carve itself up into three separate entities.
A school unit will be controlled by Brookfield, which already owned 49% of SBB EduCo AB. The other two business units will comprise the community and residential portfolios, with each seeking to tap more sources of funding, according to a statement on Sunday evening.
SBB said it would continue to explore opportunities to bring in equity partners that would hold a majority stake in its residential business by the end of next year, confirming an earlier report by Bloomberg News.
The near-term cash injection comes as part of the Brookfield deal. As part of the sale of a 1.16% holding in the education unit, the Swedish landlord will get cash through a partial repayment of a 14 billion kronor inter-company loan put in place in 2022 when Brookfield first bought a stake.
The deal with Brookfield came after SBB abruptly ended talks in July. The talks, which involved sell SBB’s entire 51% stake in SBB EduCo, were widely seen by the market as key for the ailing landlord. Prior to Sunday’s announcement, the company had struck deals with Morgan Stanley — through the sale of preferential shares — and some of its tenants to help plug its funding gap.
Proceeds for the loan repayment will come from a banking group that’s providing financing to the Brookfield-controlled unit, according to Synnes — an industry veteran who ran the books at rival Swedish landlord Akelius Fastigheter.
“You could say it’s a bridge from banks, and then it will be a capital markets solution,” he said by phone.
--With assistance from Libby Cherry.
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