Companies | A serious warning to the real estate giant SBB: it may drift into full insolvency

Credit scorer S&P estimated on Wednesday that the Swedish real estate investment company SBB will drift into complete insolvency within six months or a year at the latest.

In June, SBB offered to redeem its bonds on terms that were 30–40 percent weaker than the terms originally promised to creditors. According to S&P, this practically means partial insolvency of the company.

Because of this, the credit rating agency lowered the credit rating of SBB’s long-term liabilities to category SD (selective default) and category D (default) for the bonds that were affected by the June exchange offer.

“Classification reflects our view that SBB’s capital structure remains unsustainable, with default virtually certain in the next six to twelve months,” S&P writes.

According to S&P, a total of 14 billion kroner, or about 1.2 billion euros in debt, will fall due from SBB this year and next year, and it will be difficult for the company in crisis to get new financing.

SBB, or Samhällsbyggnadsbolaget i Norden, started running in the fall of 2022, when interest rates rose rapidly.

Company built a large debt-driven real estate portfolio in the years of zero interest rates, the valuation of which fell along with the Swedish real estate market and at the same time the cost of financing rose.

SBB owns and builds apartments and public buildings such as schools, care and service housing properties or police stations.

92 percent of the value of the company’s listed b share has been lost in a year and a half. SBB has sold everything it has received at a reasonable price in order to reduce its debts. Last year, for example, school properties were sold.

Last year, the dividend payment was postponed and the CEO and financial management were changed. The company’s founder and largest owner is a Swedish-Montenegrin Ilija Batljinwho previously made a career as a social democratic politician.

The company the value of real estate assets at the end of 2023 was 73.2 billion kroner. 18 percent of that was in Finland. The result after financial items was a loss of 19 billion kroner (1.7 billion euros).

At the end of the year, the company had long-term debt of 55 billion kroner, or 4.8 billion euros.

At the end of 2021, the value of real estate assets was said to be 149 billion kroner, which means that the drop in value has been shocking. At the end of March this year, the value of real estate assets was said to be only 67 billion kroner.

Part of the reduction in the portfolio is related to the sale of real estate. With the funds received, the company has reduced its debts.

A year ago, the Swedish Financial Supervisory Authority announced that it was investigating the basis of valuations of the company’s real estate assets. Last August, the credit rating agency Fitch lowered SBB’s rating by five notches at once, which is rare.