(Bloomberg) -- Struggling Swedish landlord SBB is preparing to lay the groundwork for an initial public offering of its entire residential portfolio by shifting bond debt from the parent level down into Sveafastigheter AB.

Samhallsbyggnadsbolaget i Norden AB — as the company is formally known — is inviting existing bondholders to exchange their notes for a new issue sold by the residential unit totaling no more than 2.5 billion Swedish kronor ($240 million), according to a statement on Thursday.

Holders across 18 of SBB’s outstanding bonds can participate in the offer by accepting new notes in euros or kronor from Sveafastigheter. The proposed new issue would be unsecured, pay an interest rate of 4.75% and mature in 2027. 

“To repurchase debt in SBB while simultaneously securing attractive, long-term debt in Sveafastigheter is fully in line with our strategy to create independent business areas,” SBB Chief Executive Officer Leiv Synnes said in an interview. “It is a win-win-win for SBB’s balance sheet, Sveafastigheter’s balance sheet, and investors,” he added.

Perpetual bonds issued by SBB led gains on Thursday, with its 2.875% notes rising 2.9 cents on the euro to 36 cents, according to data compiled by Bloomberg.

Still, some investors expressed caution on the company’s planned liability management exercise.

“It’s a risky strategy to include euro-denominated bonds in the exchange,” said Clark McPherson, a portfolio manager at Clearance Capital Ltd. “We would expect that SEK bondholders would be more comfortable participating in the proposed exchange, but there is a risk that only a small number of euro holders participate, which could be viewed negatively by the market.”

While bonds issued by Sveafastigheter may arguably offer a better credit story — given it is closer to the underlying property portfolio than shareholder SBB — it’s probably not a well-known entity for euro-denominated bondholders, McPherson added. The new notes have the “potential for IG-rating,” according to a presentation from SBB, but the rating is yet to be confirmed.

In September, CEO Synnes announced he would split the business into three units in order to raise fresh funds and tackle its $5.6 billion debt pile. Since then the group has closed a string of financing transactions with Castlelake LP, Morgan Stanley and Brookfield Asset Management Ltd. The company also plans to list its residential unit sometime in 2024, as reported by Bloomberg News last summer. 

But despite the uptick in deals, there remain huge obstacles for SBB to overcome in the coming months.

At the end of June, SBB faces a potential backlash from disgruntled shareholders as it seeks to install a new chairman and reelect ousted CEO Ilija Batljan to the board at its annual general meeting. Further out, in January, the company will be in court to fight hedge fund Fir Tree Partners, which is claiming a breach of debt terms and wants its money back. That same month SBB has a bond totaling about €408 million ($441 million) maturing, according to data compiled by Bloomberg.

--With assistance from Christopher Jungstedt and Anton Wilen.

(Adds investor comment from Clearance Capital Ltd)

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