Woes of Swedish property landlord SBB reflect rate hikes

SBB has become emblematic of how a year of central bank rate hikes have upended property firms in the biggest Nordic economy.

SBB, the landlord at the centre of Sweden’s commercial property crisis, was slammed with a downgrade of five steps further into junk by Fitch Ratings in a fresh blow for its new chief executive’s efforts to stabilise finances.

Fitch slashed the issuer default rating of the company to B-, which is one step higher than peer S&P Global Ratings, which last month lowered its credit grade on the company to CCC+, with a negative outlook.

While Fitch noted SBB’s portfolio remains solid, the downgrade came with a warning more cuts could be on the way amid struggles to raise cash to repay bonds.

“Fitch points out several of the drivers we have highlighted as important to deal with in the near term,” SBB chief executive Leiv Synnes said. 

“One such driver is liquidity to handle next year’s maturities. I am confident in the actions we are taking to improve SBB’s situation and outlook.” 

Grappling with an $8bn (€7.4bn) debt pile, SBB has become emblematic of how a year of central bank rate hikes have upended property firms in the biggest Nordic economy. Property empires built on cheap credit are teetering after suddenly facing a twin challenge of sliding asset values and higher financing costs.

Junk-grade rating

The industry is now trying to figure out how to repay mountains of debt, and investors have taken note. SBB’s bonds have long been trading at distressed prices, reflecting junk-grade rating levels. Its shares have lost more than 90% of their value since the start of last year.

SBB shares fell in Stockholm trade in the latest session, extending Monday’s 16% drop. 

The landlord, which mainly owns public-sector buildings, lost its investment grade status in early May and has been racing to close a self-identified cash shortfall of $740m over the next 12 months.

The firm’s downward spiral led to the switch of its chief executive in June. Mr Synnes, who was brought in to replace SBB founder Ilija Batljan, looks to be overhauling the company’s top ranks as he seeks to forge a sustainable business plan.

Chief financial officer Eva-Lotta Stridh last week announced she was leaving the firm after seven years in the role. Ms Stridh had helped oversee the expansion of SBB’s debt and asset base during the era of ultra-low rates, but that business model began to unravel earlier this year following a jump in interest rates and investor concern over its ability to service its debt.

SBB has continued to seek ways to lighten its balance sheet amid falling property valuations, including asset disposals and even putting itself up for sale.

Amid a shortage of buyers, the company has made “insufficient progress” on divestments, Fitch has said, adding unfavourable real estate and capital-market conditions are contributing to the deterioration of its cash position. 

• Bloomberg