Sweden's SBB eyes sale of residential arm in shake-up

By John O'Donnell, Greta Rosen Fondahn and Terje Solsvik

FRANKFURT/OSLO (Reuters) - Troubled Swedish landlord SBB is exploring the sale of a controlling stake in its residential arm, which owns 23,000 apartments, as it overhauls its business to meet debt deadlines next year, its chief executive told Reuters.

CEO Leiv Synnes said the company's sale of control in a schools property business to Canadian investor Brookfield was just the start of a sweeping overhaul of its operations, and that selling a minority or controlling stake in its residential arm could be next.

"This is the first step," Synnes said, referring to the sale of control in EduCo that allowed the repayment of an inter-company loan, releasing 7.8 billion Swedish crowns ($706 million) of cash. "We need to take more steps."

Synnes said he was in discussions with investors about its 39-billion-crown ($3.5 billion) residential arm as he seeks to close a financing gap. The company said it was also mulling a stock-market listing for that business.

"There are many investors that are looking to expand their business in the Nordics," said Synnes.

SBB's problems are unfolding as Sweden struggles to contain a wider property crisis, triggered by high debts, rising interest rates and a wilting economy.

TURNING FOCUS TO COMMUNITY ARM

Selling control of this business would focus SBB on its community arm, which owns care homes, government buildings, hospitals, police stations, fire stations and army barracks.

Long popular with investors, SBB is at the epicentre of a property crash that threatens to engulf the Nordic state's economy.

The $13 billion group, which owns swathes of property across Sweden, racked up a pre-tax loss of 11 billion Swedish crowns ($1.09 billion) in the second quarter, while its cash dwindled.

The EduCo deal, which will make Brookfield majority owner, with the Swedish firm left with a 49.84% stake, secures extra cash, sending SBB's shares up by roughly a third and boosting its bonds.

"The fact that SBB is freeing up 8 billion crowns must be seen in a very positive light. In a crisis, it is almost all about having liquidity, and SBB is getting it now," Carlsquare analyst Bertil Nilsson said.

SBB group built up vast debt by buying public property, including social housing, government offices, schools and hospitals.

It is now scrambling to salvage its finances after seeing its credit rating downgraded to junk, with some looking at the government as a potential saviour. Its shares have lost more than 90% of their value since peaking in 2021.

The Swedish real estate industry's issues have alarmed investors and prompted the Swedish central bank to issue several warnings.

Earlier this year, it cautioned that problems in heavily indebted commercial property companies could spill over and hit the economy more widely, threatening a domino effect on banks, who have lent ever more to property companies.

($1 = 11.0415 Swedish crowns)

(Reporting by Terje Solsvik, Jesus Calero and Chiara Elisei; writing by John O'Donnell; editing by Anna Ringstrom, Alexander Smith and Bernadette Baum)