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Swedish regulators have opened a probe into the accounting at property group Samhällsbyggnadsbolaget i Norden, adding to the challenges for Scandinavia’s debt-laden real estate sector.
The Swedish Financial Supervisory Authority said on Thursday it was investigating whether SBB had broken accounting rules in its 2021 annual report and whether it “should intervene against the company”.
The investigation marks the latest challenge for the Swedish landlord, which was already considering a break-up or sale as it faces imminent refinancing of billions of dollars in debt.
Swedish authorities said the investigation would include examining how SBB reported the valuation of properties in two of its portfolios, as well as how it accounted for asset acquisitions.
SBB did not immediately respond to a request for comment.
Rating agencies Fitch and S&P have cut SBB’s bond to junk status over concerns about its substantial short-term debt. The company said in April that it owed $8bn, of which 15 per cent needed to be refinanced in the next year, with another 22 per cent the following year.
Shares in the company, founded by former politician Ilija Batljan, were down about 11 per cent in morning trading in Stockholm, taking their losses this year to more than 80 per cent. Batljan stepped down as chief executive earlier this month but remains a major shareholder and director.
SBB’s bond prices were little changed on the news but are trading at deep discounts to face value, with debt maturing in 2029 quoted at roughly 61 cents on the dollar on Thursday.
The company’s board said late last month that its strategic review had been expanded to include a full or partial sale of the group. It has hired JPMorgan and Swedish bank SEB to act as advisers.
Scandinavia’s property sector has emerged as a particular concern among European markets. Many companies in the region have loaded up on cheaper short-term debt to boost their results but now face a painful reckoning as borrowing costs rise.
SBB has come under attack from short seller Fraser Perring’s Viceroy Research, which last year described the company as a “debt-fuelled roll-up of rent-controlled assets”. SBB said the report contained “numerous and material errors, misleading assumptions and [made] unsubstantiated claims”.
The group also faces pressure from some of its creditors. The company received a legal threat from a US hedge fund this month, alleging that the embattled landlord had breached a bond covenant that will trigger default on June 29.
The distressed debt specialist fund hired US law firm Cleary Gottlieb Steen & Hamilton to send a “letter before action”, according to people familiar with the matter, alleging that the company had changed its financial reporting to circumvent a breach of the terms of its bonds around interest coverage. SBB, however, has said it believes it is in compliance with this “coverage ratio”.
The bonds the hedge fund holds are written under English law, raising the prospect that it could file a claim against the landlord in a London court.
Other creditors are taking a more conciliatory approach, with a separate group including BlackRock hiring a different group of financial advisers to pursue discussions with the company. SBB has also hired restructuring adviser Moelis to aid its discussions with creditors, according to people familiar with the matter.
On top of SBB’s debts, Batljan borrowed against his stake in the company through a personal investment company, which last month announced that it would “temporarily suspend the interest payments” on some of its debt.
Batljan’s investment company said this week that it was selling a 21 per cent stake in rival Swedish property company Logistea, in a move indicative of the complicated tangle of crossholdings across the Scandinavian country’s real estate market.
