A Swedish flag flutters in front of residential houses in Stockholm, Sweden, September 14, 2023. REUTERS/Marie Mannes/File Photo Acquire Licensing Rights
FRANKFURT/OSLO, Sept 25 (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 (SBBb.ST) 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
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China Evergrande Group’s logo is seen on its headquarters in Shenzhen, Guangdong province, China, Sept. 26, 2021. REUTERS/Aly Song/File Photo Acquire Licensing Rights
HONG KONG, Sept 25 (Reuters) – China Evergrande Group’s latest trouble in firming up a long-pending debt restructuring plan led to a sell-off in its and peers’ shares on Monday, as worries resurfaced about the crisis-hit property sector after a brief respite.
Evergrande, the world’s most indebted property developer, which has become the poster child of China’s property crisis, has been working to get its creditors’ approval for a debt restructuring plan after having defaulted in 2021.
Under the plan unveiled in March this year, Evergrande (3333.HK) proposed options to offshore creditors including swapping their current debt holdings into new notes with maturities of 10 to 12 years.
In an unexpected development, the embattled developer said late on Sunday it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary, Hengda Real Estate Group Co Ltd.
Hengda said last month it was being investigated by China’s securities regulator for suspected violation over the disclosure of information.
Shares in Evergrande plunged as much as 24% on Monday, while Hong Kong’s Hang Seng mainland property sector index (.HSMPI) was trading 3.7% lower.
“Its debt restructuring plan is now stuck and can’t go any further,” said Steven Leung, sales director at UOB Kay Hian in Hong Kong. “Other options, such as converting the debt into shares of other listed units, are also seen not workable now.”
Evergrande’s offshore debt restructuring involves a total of $31.7 billion, which includes bonds, collateral and repurchase obligations, potentially making it one of the world’s biggest such exercises.
The developer’s latest woes reverse a brief respite for the Chinese property sector, which accounts for roughly a quarter of the economy, on the back of Beijing’s support measures and two other major developers forged debt deals with their creditors.
“Concern over the financial health (of developers) still clouds the property sector, especially those smaller property developers with high gearing but very few property projects on hand,” Leung said.
WINDING UP PETITION
A string of leading Chinese developers have defaulted on their offshore debt obligations since the property sector was hit by an unprecedented liquidity crisis in 2021 after regulators reined in a debt-fuelled building boom.
Many of the defaulted developers have been trying to get their offshore creditors’ approval for debt restructuring plans to avoid a messy collapse or being forced into liquidation proceedings.
Not many of those plans have succeeded.
Developer China Oceanwide Holdings Ltd (0715.HK), which has failed to meet its debt obligations, said in an exchange filing on Monday that a Bermuda court has ordered the winding up of the company and has appointed joint provisional liquidators.
The latest roadblock in Evergrande’s debt restructuring plan opens a new front for the developer just a week after police detained some staff at its wealth management unit, sending its shares slumping.
Earlier this month, Evergrande said it had delayed making a decision on offshore debt restructuring from September to next month to allow holders of its debt more time to consider its proposal.
Evergrande needs approval from more than 75% of the holders of each debt class to approve the plan.
The Evergrande development comes as leading developers such as Country Garden (2007.HK) scramble to avoid a default, keeping home-buyer sentiment depressed despite Beijing’s raft of support measures to prop up the sector and spur property demand.
As of the end of August, the combined floor area of unsold homes stood at 648 million square metres (7 billion square feet), the latest data from the National Bureau of Statistics (NBS) show.
Reporting by Donny Kwok, Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Lincoln Feast and Sam Holmes
Our Standards: The Thomson Reuters Trust Principles.
Sept 24 (Reuters) – Swedish property group SBB (SBBb.ST) on Sunday divested 1.16% of its education subsidiary EduCo to Brookfield Super-Core Infrastructure Partners for around 242 million Swedish crowns ($21.73 million) as it looks to bolster its finances.
SBB will hold approximately 49.84% of EduCo after the divestment, following which EduCo will be controlled by Brookfield. The transaction is expected to be completed in October this year.
Sweden is in the grips of a worsening property crisis, with developers grappling with large debts, rising interest rates and a wilting economy. Earlier this year, the International Monetary Fund flagged Sweden’s historically high household borrowing, coupled with debt-driven commercial property firms and their dependence on local banks, as a financial stability risk.
SBB, one of Sweden’s largest commercial landlords, in May initiated a strategic review including a potential sale of all of the company, or some of its business segments, to improve its finances.
As part of the deal announced on Sunday, EduCo will repay part of its inter-company loan from SBB, resulting in the Stockholm-based company receiving approximately 7.8 billion Swedish crowns ($700.46 million) in cash.
SBB’s remaining loan to EduCo will be around 5.5 billion Swedish crowns.
Brookfield bought a 49% stake in EduCo from SBB in November of last year. Discussions with Brookfield to sell the remaining 51% stake broke down in July, dealing a blow to SBB, which was fighting for survival after its shares plunged in May on concerns over its financial position and a refinancing of billions of crowns in debt.
Brookfield Super-Core Infrastructure Partners is the infrastructure fund of Canada’s Brookfield Asset Management(BAM.TO). Brookfield declined to comment.
SBB also said it had decided on a decentralised group structure, wherein the company will establish three wholly, or partially owned business units – Education, Community, and Residential.
($1 = 11.1356 Swedish crowns)
Reporting by Rishabh Jaiswal in Bengaluru; editing by Barbara Lewis and Sharon Singleton
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A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo Acquire Licensing Rights
Sept 22 (Reuters) – Shares in real estate companies fell on Friday, adding to a massive sell-off the previous day, when bond yields jumped to their highest levels in 16 years after the Federal Reserve signaled that U.S. interest rates would stay high for longer.
The S&P 500 real estate index (.SPLRCR) lost 0.7% on Friday after falling 3.5% on Thursday, which was its biggest daily decline since March when the banking sector was in crisis.
The U.S. Treasury 10-year yield , fell slightly on Friday, after rising on Thursday to around 4.5%, its highest since 2007. This provided tempting returns for fixed-income assets, making the relatively high dividend payouts of Real Estate Investment Trusts (REITs) a little less tempting.
REITs also tend to borrow heavily so the prospect of higher rates for longer puts pressure on their profit outlook. While the Fed decided not to hike interest rates after its meeting on Wednesday, it indicated that rates could stay at elevated levels for longer than investors had expected.
“Not only are REIT’s bond substitutes but they also rely on borrowing so that just makes them doubly interest-rate-sensitive,” said Jack Ablin, chief investment officer of Cresset Capital who says that even though the sector seems cheap by some measures, he is not ready to step in right now.
The S&P 500 real estate index is the second weakest performer among the benchmark S&P 500’s 11 major sectors with a decline 6.5% so far this year, second only to utilities’ (.SPLRCU) 10.3% drop. This compares with year-to-date a gain of about 15% for the benchmark index.
But Gina Szymanksi, portfolio manager for REITs at AEW Capital Management, said she expects Treasury yields will peak around current levels, which will help REIT stocks that have “already baked in” 10-year Treasury yields in this range.
“The knee-jerk reaction is, as interest rates rise, you sell REITs. It’s not totally unrealistic. They are capital intensive businesses that require financing,” said Szymanski, adding that if 10-year yields rise sharply from here it would add pressure to REIT stocks.
But if the economy weakens, REITs often outperform.
“When the Fed tries to slow the economy, it’s usually successful. That usually results in declining earnings for companies in general and when that happens it’s the time for REITs to shine,” says Szymanksi who estimates a roughly 20% total return for real estate stocks in the next two years.
On Friday the biggest real estate loser was American Tower (AMT.N), which finished down 1.8% while the biggest gainer was Extra Space Storage (EXR.N), up 1.2%.
Alexandria Real Estate Equities (ARE.N) fell 1.6% on Friday, after losing 8% on Thursday and hitting its lowest level since 2016.
Reporting By Sinéad Carew, editing by Lance Tupper and David Gregorio
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Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach Acquire Licensing Rights
BERLIN, Sept 22 (Reuters) – German housing prices fell by the most since records began in the second quarter as high interest rates and rising materials costs took their toll on the property market in Europe’s largest economy, government data showed on Friday.
Residential property prices fell by 9.9% year-on-year, the steepest decline since the start of data collection in 2000, the federal statistics office said. Prices fell by 1.5% on the quarter, with steeper declines in larger cities than in more sparsely populated areas.
In cities such as Berlin, Hamburg and Munich, apartment prices fell by 9.8% and single and two-family house prices dropped by 12.6% on the year.
For a decade, low interest rates have fuelled a property boom in Europe’s largest real estate investment market. A sharp rise in rates and increasing construction costs have put an end to the run, tipping a string of developers into insolvency as deals froze and prices fell.
Building permits for apartments in Germany declined 31.5% in July from a year earlier, the statistics office disclosed on Monday, as construction prices rose by almost 9% on the year.
Germany aims to build 400,000 apartments a year, but has struggled to meet the goal.
German housing industry association GdW on Friday sounded the alarm over the situation calling for government support for construction companies.
“The construction crisis in Germany is getting worse day by day and is increasingly reaching the middle of society,” GdW, which represents around 3,000 housing companies nationwide, said in a statement.
GdW called for a cut in value added tax (VAT) to 7% from the current level of 19% for affordable rentals and government funding loans with a 1% interest rate to support companies.
The government is scheduled to hold a summit with the industry on Monday to discuss the situation.
GdW and the Haus&Grund owner’s association said they were boycotting the summit as they had too little influence on its agenda.
The German cabinet plans to present an aid package for the industry by the end of month after announcing plans to promote the construction sector, including reducing regulatory and bureaucratic requirements.
Reporting by Riham Alkousaa and Klaus Lauer, editing by Kirsti Knolle and Sharon Singleton
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Vehicles drive among the buildings during the evening rush hour in Beijing’s central business area, China November 21, 2018. REUTERS/Jason Lee/File Photo Acquire Licensing Rights
BEIJING, Sept 20 (Reuters) – China should step up policy support for the economy while promoting reforms to help achieve the annual growth target of around 5%, Yi Gang, former governor of the People’s Bank of China (PBOC), said in remarks published on Wednesday.
China’s factory output and retail sales grew at a faster pace in August, but tumbling property investment threatens to undercut a flurry of support steps that are showing signs of stabilising parts of the wobbly economy.
“We should appropriately increase macroeconomic policy adjustments, effectively support the expansion of domestic demand and promote a virtuous economic cycle,” state media quoted Yi, deputy head of the economic committee of the Chinese People’s Political Consultative Conference (CPPCC), as saying.
That will help China achieve the 2023 growth target of around 5%, Yi said.
The government should move to boost the weak confidence of private firms and tackle local government debt risks that have hampered local authorities’ ability to support growth, Yi said.
“In the long term, affected by factors such as the slowdown in urbanisation and the population aging, the overall demand for home purchases may fall to a new level,” Yi said.
The central bank should use its structural policy tools to support “rigid and improved housing demand”, he said.
Yi also called for reforms of China’s system on residence permits, or “hukou”, and improve social welfare for millions of migrant workers who had entered cities, which will help boost consumption.
Reporting by Kevin Yao; Editing by Chizu Nomiyama
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U.S Representative Andy Barr (R-KY), Rep. Mike Gallagher (R-WI), and Rep. Blaine Luetkemeyer (R-MO) attend a House Select Committee on the Chinese Communist Party hearing entitled “The Chinese Communist Party’s Threat to America,” in Washington, U.S., February 28, 2023. REUTERS/Nathan Howard/File Photo Acquire Licensing Rights
Sept 19 (Reuters) – The chair of the U.S. House of Representatives’ committee on China on Tuesday planned to meet with a semiconductor industry group to express concerns over U.S. investments in China’s chip industry, according a source familiar with the matter.
Representative Mike Gallagher, an influential Republican lawmaker whose select committee has pressed the Biden administration to take a tougher stance on sending U.S. technology to China, planned to meet with the Semiconductor Industry Association, which represents major chip firms such as Nvidia (NVDA.O) and Intel (INTC.O) whose sales to China have been affected by U.S. export rules, the source said.
Gallagher planned to tell the group he believes that U.S. rules enacted last October that cut off the sale of advanced artificial intelligence chips to China should be tightened to cover less advanced chips, the source said. The source added that Gallagher also aimed to talk with the group about reducing the number of semiconductor manufacturing machines that could be sent to China.
Also among the planned discussion topics is U.S. investment in Chinese chip firms. Intel, Qualcomm (QCOM.O) and other firms have venture capital arms that have invested in Chinese technology companies, the source added.
Gallagher also will express his concerns that a massive Chinese effort to build up capacity to build less advanced chips used in automobiles, washing machines and other everyday products could one day result in China dumping those chips on the U.S. market and drive U.S. makers of such chips out of business, the source said.
A representative for the Semiconductor Industry Association did not immediately return a request for comment.
Reporting by Stephen Nellis in San Francisco
Editing by Nick Zieminski
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[1/2]People on a property tour visit a show flat of a real estate property developed by Sunac China Holdings in Xishuangbanna Dai Autonomous Prefecture, Yunnan Province, China, June 22, 2019. Picture taken June 22, 2019. REUTERS/Lusha Zhang/File Photo Acquire Licensing Rights
HONG KONG, Sept 19 (Reuters) – Chinese developers Sunac (1918.HK) and Country Garden (2007.HK) brought some relief to the crisis-hit property sector by forging debt deals with creditors, but the outlook remained clouded by uncertainty about a recovery in home sales.
Shares in Sunac China Holdings surged as much as 14% in early trade on Tuesday after creditors approved its $9 billion offshore debt restructuring plan, the first green light of such a debt overhaul by a major Chinese developer.
The stock, however, gave all its gains later and dropped more than 7% in the afternoon trade after reports, citing court documents, showed Sunac has filed for U.S. bankruptcy protection under Chapter 15.
Under the U.S. bankruptcy code, the move shields non-U.S. companies that are undergoing restructurings from creditors that hope to sue them or tie up assets in the United States. The step is seen as procedural in large offshore debt revamp processes.
China Evergrande Group (3333.HK), which is seeking to restructure a total of $31.7 billion in one of the largest such exercises in the world, also sought protection under Chapter 15 last month.
TROUBLED SECTOR
Separately, cash-starved Country Garden won approval from creditors to extend repayment on another onshore bond, the last in the batch of eight bonds it has been seeking extensions for, two sources familiar with the matter said on Tuesday.
The developments come as Beijing steps up efforts to revive the property sector, which accounts for roughly a quarter of the world’s second-largest economy, with a raft of support measures unveiled over the last few weeks.
Sunac said late on Monday that creditors holding 98.3% of the total value of the bonds who attended the vote had approved the restructuring plan proposed and agreed to by some creditors in March.
The developer will seek approval of the plan by a Hong Kong court at a hearing scheduled for Oct. 5.
As part of the restructuring terms, a portion of its debt would be exchanged into convertible bonds backed by its Hong Kong-listed shares along with new notes with maturities of between two and nine years.
“I will treat it as a positive … We haven’t seen much progress on the offshore market, so this shows at least some Chinese developers are trying to reach an agreement,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
If the plan could be implemented well, and depending on whether the recovery of China’s property market could generate sufficient cash flows, investors would be able to get something back, he added.
PROPERTY SECTOR OUTLOOK
While Sunac is among a string of Chinese developers that have defaulted on their offshore debt obligations since an unprecedented liquidity crisis hit the property sector in 2021, Country Garden has not missed any offshore payments yet.
The latest debt agreements with creditors will give some breathing room to Chinese developers and help them avoid default or a messy liquidation process, but the success of the agreements will depend on a recovery in the property sector.
Some offshore bondholders say they don’t have many options apart from agreeing to debt restructuring proposals, given their returns will likely be very low if they choose to liquidate a cash-strapped developer.
Even as Beijing implements measures to prop up the sector, house prices have continued to decline – latest data show new home prices fell at their fastest pace in 10 months in August, while falls in real estate investment and sales deepened.
ANZ Senior China Economist Betty Wang said the support measures could spur some “genuine demand” especially ahead of the traditional sale season during late September/early October in top-tier cities.
“However, the pace and the extent of such a turnaround will be much smaller than in previous cycles,” she said in a report published on Tuesday.
“It’s also questionable whether it will kick off a sustainable rebound especially considering the uncertain job outlook, deteriorating income inflows, a shift in expectations, and potential increase in housing supply in the long-term.”
Reporting by Donny Kwok and Xie Yu in Hong Kong, Steven Bian in Shanghai, and Kevin Huang in Beijing; Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Lincoln Feast
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People walk along the beach on the Suffolk coast as the Sizewell B nuclear power station can be seen on the horizon, near Southwold, Britain, January 31, 2019. REUTERS/Russell Boyce Acquire Licensing Rights
LONDON, Sept 18 (Reuters) – Britain on Monday opened the search for private investment in the Sizewell C nuclear project, inviting potential investors to register their interest.
The building of the plant by French energy giant EDF in southeast England, capable of producing around 3.2 gigawatts of electricity or enough to power around 6 million homes, was approved in July 2022.
“The government, the Sizewell C Company and EDF, the project’s lead developer, are looking for companies with substantial experience in the delivery of major infrastructure projects,” a statement from the Department for Energy Security and Net Zero said.
The British government announced last year that it would support Sizewell C with around 700 million pounds ($895 million) while taking a 50% stake during its development phase.
“The launch of the formal equity raise opens another exciting phase for the project, following a positive response from investors during market testing,” said Sizewell C Company Joint Managing Director, Julia Pyke.
Reporting by Kylie MacLellan, writing by William James
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Zhao Youming, 60, looks at an unfinished residential building where he bought an apartment, at the Gaotie Wellness City complex in Tongchuan, Shaanxi province, China September 12, 2023. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
HONG KONG, Sept 18 (Reuters Breakingviews) – Chinese developers are in trouble. Many are struggling to stay afloat as both financing and sales dry up. Why don’t they simply slash prices and sell down their bloated inventory? Well, they can’t. Restrictions imposed after the last property crisis in 2016 were intended to contain runaway home prices. Those limits endured and are now obstructing a recovery in the world’s second largest economy.
“Guidance” set by local governments helped officials to achieve price stability. Average new home prices in the 70 major cities, per official data, have fluctuated around just 2% on a monthly basis for more than a year even as top developers wrestle to restructure their debt. Evergrande (3333.HK) and Country Garden (2007.HK) alone have combined liabilities worth 3.8 trillion yuan ($524 billion).
Yet the restrictions hid distortions. When the mood was bullish, price caps in major cities were far below what people were willing to pay. Crowds of buyers typically flocked to project launches. Those who were lucky enough to be allocated a new apartment could then flip it for a handsome profit in the limited secondary market.
That’s one reason many Chinese viewed caps as a “subsidy” for prospective homeowners. Fast forward, and these controlled prices are much higher than the perceived market value. Some developers have tried to work around the problem, by offering homebuyers “discounts” including car parking lots or even gold bars. Home sales last year fell 27% to return to 2017 level, per National Bureau of Statistics, and sales this year are on course to be worse.
Scrapping the price caps would be a cleaner fix and officials are weighing up such a move, Reuters reported this month. The Guangzhou government has already quietly abandoned its seven-year-old policy in regulating new home prices, according to Caixin, a financial publication. Hard up developers will be able to start generating much-needed cash if more cities follow. Take Country Garden, it had a 202 million square metre landbank at the end of 2022, including 3,000 projects under construction. How quickly it can monetise some of those assets ultimately depends on how attractive the selling prices are.
A price slump would spur demand but the government would need to brave enormous fallout. Existing owners will be unhappy to see the value of their homes tumble: China’s homeownership rate reached 90% by 2020, and real estate accounts for 70% of household wealth. In a weak economy, it is unclear where an undistorted price will settle. Still, finding the bottom of the market looks crucial to any property market revival.
CONTEXT NEWS
China’s Guangzhou city has cancelled price caps on new residential projects, Caixin reported on Sept. 12. Developers still need to share their planned selling prices with authorities but regulators will no longer provide price guidance, the financial publication said.
Price caps of various kinds were introduced in many Chinese cities from 2016 following the central government’s call for a stable residential market.
Editing by Una Galani and Thomas Shum
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