So much for “buy the rumour, sell the news”. Investors in SBB have been doing the opposite. Shares in the struggling Scandinavian real estate group soared by more than half late last week after Leiv Synnes was appointed chief executive. Claims that US distressed debt investors think the company has breached covenants did little to dent the rally.
The company is emblematic of a deflating price bubble in Swedish residential property. It says covenants are intact. On Tuesday, steely-nerved investors held on to gains.
Equity in Europe’s most-shorted property company has become a binary bet on survival. SBB is seeking funds to forestall a formal restructuring of its $8bn short-dated debt pile.
Synnes has ruled out a fire sale of assets or a rebooted rights issue. The last equity raise was scrapped after S&P downgraded the company to junk status. A tie-up with Synnes’ former employer, Akelius Residential Property, may be the best option.
SBB shares rose fivefold between 2019 and a peak in late 2021. Higher rates and falling property prices have since popped the bubble. The stock has dropped 90 per cent. SBB’s equity now represents less than a tenth of its enterprise value. It has to refinance about $1bn worth of debt in the next 12 months. It had cash at hand of just $500mn in the first quarter of the year.
Financial wonkery is helping forestall creditor pressure for repayment. SBB shifted a portion of property expenses into general and administrative costs, boosting property-level profits. US plaintiffs are likely to pick the maths apart in court.
A nil-premium all-share merger with Akelius would be a tidy solution. The residential landlord has low debts and is less exposed to falling continental European property prices.
The combined pro forma loan-to-value would be in the low 40s, from SBB’s current mid-50s level. At current share prices, SBB shareholders would own about 6 per cent of shares. Debtholders could avoid a hair cut.
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