Property group SBB used to be seen as an investment surefire for thousands of ordinary Swedes investing in one of Sweden’s biggest landlords. Now, however, it stands at the centre of an economic catastrophe which threatens to encompass it all. On Friday it will provide investors with their second quarter results; many have expressed a sense of fear instead.
SBB was an $13 billion group which amassed enormous debt by purchasing public property such as social housing, government offices, schools and hospitals at significant discounts from their market values. While its strategy initially seemed brilliant – municipalities received cash payments while SBB created low-risk properties with reliable income streams – as inflation quickly escalated and central banks launched rate increase cycles at unprecedented speeds, its debt pile became increasingly vulnerable.
Credit ratings were downgraded to junk status and interest rates shot up, creating a domino effect of falling share prices for SBB. In an effort to conserve cash and limit damage, dividends were postponed; share issues were cancelled; Ilija Batljan was ousted as founder; an agreement was also made with Canadian investment and property firm Brookfield to sell off a stake.
On Friday, investors anticipate getting an in-depth view of SBB’s finances, anticipating it to report a loss and diminishing cash reserves. Investors anticipate SBB will suffer its largest ever second-quarter loss and its cash reserves have dropped below 1.9 billion Swedish crowns – less than half what was available back in December.
Analysts are eager to see how Chief Executive Leiv Synnes plans to reduce debt and unload property assets. Already a portion of their construction assets were sold off and talks are currently ongoing with Canada’s Brookfield to offload more properties.
But SBB still faces an uphill struggle in rebuilding investor trust. Allegations by short-sellers such as Fraser Perring’s Viceroy Research LLC alleging improper accounting practices and deals done with related parties at overinflated valuations has rocked investor confidence in SBB shares, and now the Financial Supervisory Authority is conducting its own probe regarding valuation of Trygge Barnehager and Laeringsverkstedet assets.
SBB’s problems serve as an alarm bell to experts about the perils associated with overly-leveraged property companies. Sweden’s central bank recently warned of how problems in this sector could amplify and spillover into other sectors if interest rates increased and currencies devalued, further magnifying risk in an economy already struggling with debt servicing costs. It urged lenders to take caution when lending money to property firms so as to cover debt servicing costs adequately.
