The plan by SBB, one of Sweden’s biggest commercial landlords, to urgently conserve cash by postponing dividend payments is hitting the investment company of its chief executive officer, Ilija Batljan, which faces its own looming debt maturities.
(Bloomberg) — The plan by SBB, one of Sweden’s biggest commercial landlords, to urgently conserve cash by postponing dividend payments is hitting the investment company of its chief executive officer, Ilija Batljan, which faces its own looming debt maturities.
Ilija Batljan Invest AB could see its total recurring income, much of which comes from the real estate company, plummet to 100 million kronor ($9.6 million) this year from 154 million in 2022, according to estimates from Scope Ratings. With higher interest payments due on its floating-rate debt, that means it will have to turn to cash reserves or sales of some liquid assets to meet debt payments and other costs, analysts including Thomas Faeh said.
SBB, as Samhallsbyggnadsbolaget i Norden AB is commonly known, has come under pressure as higher interest rates weigh on the real estate market. The Stockholm-based property developer recently scrapped plans to sell its own shares in the wake of a credit rating downgrade to junk.
“The risk of default is definitely there at maturity,” said Glenn Kringhaug, a credit analyst at the ABG Sundal Collier. “With SBB now pausing dividends, IB Invest is clearly dependent on disposing of assets to handle its debt.”
Neither IB Invest nor SBB responded to requests for comment.
As well as pausing its dividend payment, SBB also sold shares in another real estate developer JM AB last week in a bid to raise cash. While Scope sees IB Invest’s problem as temporary until SBB resumes its dividend payments, investor concerns are already apparent.
Distressed Levels
IB Invest’s 1.35 billion kronor of floating-rate bonds due in December 2024 are indicated at deeply distressed levels, quoted at 35% of their face value, according to BVAL pricing compiled by Bloomberg. Hybrid notes, considered riskier given they offer issuers the option to defer coupon payments, are indicated at just 10%.
Batljan, a former politician, founded SBB in 2016 and holds an 8.3% stake in the business via his company and private holdings, according to SBB’s latest report. After loading up on debt to fuel a series of acquisitions, the landlord is facing concerns over its liquidity position, which culminated in the downgrade by S&P Global Ratings.
The share slump on May 8 following the S&P move forced SBB to cancel a planned rights issue and propose postponing dividends, although the company said it does plan to pay the funds by the annual general meeting in May 2024 at the latest. While this means that IB Invest should receive any lost income eventually, for now it undercuts a key source of income.
“The amended payment schedule constitutes a change in the previously perceived untouchable dividend policy of SBB i Norden and thereby increases uncertainty” for IB Invest, the Scope analysts wrote. They noted that if SBB was unable to pay the postponed dividend or permanently changed its dividend policy, that could pave the way for a downgrade for IB Invest.
Illiquid Assets
Alongside its core holding of SBB, IB Invest holds listed shares in other real estate and logistics companies, as well as unlisted shares and properties, according to its website. The floating-rate notes benefit from unencumbered assets worth 4 billion kronor at end-2022, according to Scope.
Still, while the listed shares should be easier to sell, there is more uncertainty about the value of more illiquid assets should the company need to liquidate them to raise cash, according to Kringhaug.
“It’s very difficult to assess the value of some of the less liquid assets such as the unlisted shares,” he said. “The property should be possible to sell, but the question is the price.”
Spiltan Fonder AB is among investors in both IB Invest and SBB, the asset manager said.
Real estate businesses across Europe have been turning to rights issues and property sales to shore up their liquidity, as rising rates pressure the value of their properties. That’s making it harder to refinance debt, while pressure to sell assets is adding to further strains on the real estate market in the process.
The rout has already taken a toll on IB Invest. SBB’s devaluation of its property holdings contributed to the loss of 658 million kronor from shares in associated companies and joint ventures in 2022, according to its fourth-quarter results.
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