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Analysis-Fall from grace: How the property crash unravelled Sweden's SBB

Published Jul 13, 2023 03:12AM ET Updated Jul 13, 2023 03:35AM ET
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© Reuters. A general view shows the headquarters of the Swiss railway operator SBB in Bern, Switzerland March 18, 2021. Picture taken March 18, 2021. REUTERS/Arnd Wiegmann

By Marie Mannes, John O'Donnell and Chiara Elisei

STOCKHOLM/LONDON/FRANKFURT (Reuters) - For hundreds of thousands of ordinary Swedes, investing in one of their country's biggest landlords SBB was a sure bet for years. Now it is at the epicentre of a property crash that threatens to engulf the Nordic state's economy.

On Friday, the heavily-indebted property group will offer investors a glimpse of its finances in its second-quarter results and enthusiasm for the one-time rising star has been displaced by a sense of foreboding.

SBB is scrambling to salvage its finances after recently seeing its credit rating downgraded to junk. Its shares have lost over 90% of their value since peaking in 2021.

Maria De Geer of the Swedish Shareholders Association said the company's shares had once been so popular among Swedes it became known as a stock for the people, snapped up by roughly 300,000 small investors.

"All those people ... thought they would become millionaires," she said.

"There are still lots and lots of small shareholders who've had a massive loss as they bought ... at the peak and they are now with something more or less worthless."

Those investors bought into a strong track record of growth, stable dividends and a credit rating to be proud of.

But the company, founded by a former social democrat politician Ilija Batljan, built up vast debts buying public property including social housing, government offices, schools and hospitals.

Hit by soaring interest rates, it was forced to cancel its dividend and scrap a share issue. SBB has said it is now hunting for a buyer of all or parts of its business after Batljan was forced to step down.

SBB's problems are unfolding as Sweden struggles to contain a wider property crisis.


House prices are down by around one-fifth since their March 2022 peak, according to the Organisation for Economic Cooperation and Development, reflecting soaring mortgage costs.

Robert Bergqvist, an economist with Swedish bank SEB, said home building accounted for about 30% of the country's economy, and that any slowdown would have a serious wider impact.

SBB is seeking to repair confidence, having taken steps to shore up liquidity. It has said it plans on selling roughly 6 billion Swedish crowns worth of assets this year.

But investors remain on edge.

Analysts expect results on Friday to be weighed down by a roughly 3 billion Swedish crown loss the company made when it sold a stake in construction firm JM earlier this year to free up cash.

They are also waiting to hear how new chief executive Leiv Synnes plans to pare back debt and sell further property. SBB is in talks with Canada's Brookfield Asset Management about selling its remaining stake in its education subsidiary.

Speculators are betting that the stock price has further to fall. SBB shares are subject to more short-selling - a bet that the stock price will drop - than any other Swedish company, according to data from the financial regulator.

The company has a stock market value of about 9 billion Swedish crowns ($866.52 million) and continues to grapple with roughly 81 billion Swedish crowns of debt as of March 2023, with around 15% of it maturing within one year.

A 950 million euro bond issued by SBB Treasury Oyj was trading at a price of 59 cents in the euro on Wednesday - a level that shows investors fear a wipe out. The price of a 450 million euro-plus perpetual bond sold by SBB hovered around 22 cents in the euro on Wednesday, betraying investor fears.

To make matters worse, SBB is also the subject of an accounting probe by the Swedish financial authority.

One former top-five SBB shareholder told Reuters it had all but scrapped its stake.

De Geer is watching nervously.

"One can hope that they can get the company back on track so there will be something left for all those shareholders," she said. "If, on the other hand, the SBB will be bought up, then the small shareholders will probably lose everything."

($1 = 10.3864 Swedish crowns)

Analysis-Fall from grace: How the property crash unravelled Sweden's SBB

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