SBB abruptly ended talks with Canada’s Brookfield Asset Management Ltd. over the sale of a 51% stake in a portfolio of school buildings, reflecting the struggles the embattled Swedish landlord faces to close a looming funding gap.
The sale of the holding to Brookfield, which already owns a 49% stake in the unit called SBB EduCo AB, had been seen as key to reviving the landlord’s fortunes. Samhallsbyggnadsbolaget i Norden AB — as the company is formally known — is racing to plug an 8.1 billion-krona ($780 million) cash shortfall over the next 12 months.
Stockholm-based SBB is at the epicenter of the broader turmoil in real estate markets, as higher interest rates depress valuations around the world. The company’s troubles risk becoming a broader issue in Sweden as it owns many public-sector buildings like nursing homes and schools.
Shares in the Swedish property company dropped as much as 21%, reversing earlier gains on prospects of narrowing its funding gap. Over night, SBB announced a deal to raise $228 million from a sale of new preference shares in a residential unit to a fund managed by Morgan Stanley. The company’s bonds also reversed earlier gains.
The company “now faces even more pressing liquidity challenges,” Bloomberg Intelligence analyst Tolu Alamutu said in an interview. “The end of talks with Brookfield may add urgency to ongoing bondholder discussions.”
Read More: Troubled Swedish Landlord SBB Enters Talks With Bondholders
In a statement on Friday, SBB didn’t specify why the talks broke down, but made it clear it was ready to continue speaking with Brookfield. The landlord “does not rule out that the discussions can be resumed at a later point in time,” SBB said.
“It is understandable that SBB does not want to dispose of its high-quality assets at too large discounts,” Louis Landeman, an analyst with Danske Bank A/S in Stockholm, said in a note to clients. “At the same time, the company needs to strengthen its liquidity while also reducing leverage.”
As recently as last week, SBB’s newly installed Chief Executive Officer Leiv Synnes told Bloomberg that the company was in “constructive dialogue” regarding the share sale to Brookfield and that a transaction could happen this month.
The Swedish landlord said in June that it had entered into exclusive talks with Brookfield to sell the remaining shares in the educational unit and to repay an inter-company loan of 14.5 billion kronor. SBB sold a 49% stake in EduCo to Brookfield in 2022 for 9.2 billion kronor.
EduCo’s strategy is to invest in and manage social infrastructure assets within the public-backed education sector in Sweden, Denmark, Norway and Finland. The unit comprises 585 properties across the Nordic region.
“Recent deals show that there are several different funding sources available to SBB,” Synnes said in an e-mailed statement. “We are running parallel processes to find the best mix of solutions. In that context, it is important that we make the right decision, at the right time, and not rush.”
--With assistance from Anton Wilen.
(Adds CEO comment in last paragraph)
