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Swedish regulators have launched an investigation into the accounting of Samhällsbyggnadsbolaget i Norden real estate group, posing a further challenge to Scandinavia’s debt-laden real estate sector.
The Swedish Financial Supervisory Authority said on Thursday it was investigating whether SBB violated accounting rules in its 2021 annual report and whether “the company should be intervened”.
The probe marks the latest challenge for the Swedish landlord, which is already considering a spin-off or sale as it faces an impending refinancing of billions of dollars in debt.
Swedish authorities said the probe would include a review of how Steel Business Briefing reported valuations of real estate in its two portfolios and how it accounted for asset acquisitions.
Steel Business Briefing did not immediately respond to a request for comment.
Rating agencies Fitch and Standard & Poor’s have downgraded SBB’s bond rating to junk status due to concerns about its large short-term debt. The company said in April that it owed $8 billion in debt, 15 percent of which would need to be refinanced next year and another 22 percent the following year.
Shares in the company, founded by former politician Ilija Batljan, were down about 11 percent in morning trade in Stockholm and are down more than 80 percent this year. Batljan stepped down as chief executive earlier this month but remains a major shareholder and director.
Steel Business Briefing’s bond prices were little changed after the news, but were trading at a steep discount to face value, with bonds due in 2029 quoted at around 61 cents on the dollar on Thursday.
The company’s board said late last month that its strategic review had been broadened to include a sale of all or part of the group. It has hired JPMorgan and Sweden’s SEB Bank as advisers.
The real estate sector in Scandinavia has become a particular concern for the European market. Many companies in the region, which borrowed cheaper short-term debt to boost performance, now face painful reckoning as borrowing costs rise.
Steel Business Briefing has come under fire from short-seller Fraser Perring’s Viceroy Research, which last year described the company as a “debt-driven agglomeration of rent-controlled assets”. Steel Business Briefing said the report contained “a number of material errors, misleading assumptions and (made) unsubstantiated claims”.
The group is also facing pressure from some creditors. The company received a legal threat from a U.S. hedge fund this month, accusing the troubled landlord of violating bond covenants and will trigger a default on June 29.
The distressed-debt specialist fund hired U.S. law firm Cleary Gottlieb Steen & Hamilton to send a “pre-action letter” accusing the company of altering its financial reports to avoid violating bond terms, according to people familiar with the matter. Surrounding interest coverage. However SBB said it believed it met this “coverage”.
The hedge fund’s holdings of the bonds are under British law, raising the possibility that it could pursue claims against landlords in London courts.
Other creditors are taking a more conciliatory stance, with an independent group including BlackRock hiring a different group of financial advisers to hold discussions with the company. Steel Business Briefing has also hired restructuring adviser Moelis to assist in discussions with creditors, according to people familiar with the matter.
In addition to SBB’s debt, Batljan has also borrowed through a personal investment firm against his stake in the company, which last month Announce It will “temporarily suspend interest payments” on some of its debt.
Batljan’s investment firm said this week it would sell its 21 percent stake in rival Swedish property company Logistea, a move that points to the complex cross-holding situation across the Scandinavian country’s real estate market.