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Oscar’s Near Collapse Shows Danger Lurking in Sweden Real Estate

(Bloomberg)

(Bloomberg) -- The risks still circling Sweden’s commercial real estate industry were laid bare late on Thursday when the debt crisis deepened for one of the country’s most high profile landlords. 

The Swedish Tax Agency filed a petition with a court for Oscar Properties Holding AB to be declared bankrupt, adding to a growing list of claimants that have sought insolvency proceedings against the former developer of luxury apartments. 

Oscar Properties, along with many other smaller landlords such as K2A Knaust & Andersson Fastigheter AB, have desperately tried to offload assets to raise cash to meet debt obligations that had become too expensive to refinance on the bond market. But with a lack of willing buyers those efforts haven’t gone far enough. The number of bankruptcies in the sector jumped by 73% in the first seven months of the year, according to Creditsafe.

And while May’s interest-rate cut has encouraged many property firms to issue notes in Sweden again, notable absentees from the debt capital markets include Heimstaden Bostad AB and Samhallsbyggnadsbolaget i Norden AB, also known as SBB.

For Heimstaden, among Europe’s largest owners of apartments, the pressure is on to avert a costly downgrade of its credit rating to junk by selling apartments across several of its markets. On Thursday, the landlord said it had signed a new €725 million ($782 million) loan secured on assets in Netherlands, bringing in a cash injection of €200 million. It’s also embroiled in the scandal engulfing pension fund Alecta, which is facing a series of investigations over its 39% stake in the property firm.

Bloomberg Intelligence analyst Tolu Alamutu says Heimstaden’s new loan “is unlikely to comprehensively quell concerns about funding.” More loans and disposals may be required given “net new proceeds at €200 million compare to more than €1 billion (equivalent) due this year and next,” she wrote in a note. 

The situation at SBB is even worse. With assets focused on the Nordics, the landlord has to rely on a more limited pool of regional banks. To secure more financing, the company is embarking on a strategy to split the group into three along its education, community and residential portfolios. The latter — carved out as Sveafastigheter AB — is expected to be packaged into an initial public offering in the second half of this year once 10.4 billion kronor ($1 billion) of loans are secured.

For Oscar Properties there is now the real prospect of bankruptcy. Chief Executive Officer Richard Bagge acknowledged the risk on Thursday but said he’ll seek to avert that by filing for reconstruction ahead of a court hearing scheduled for Monday. His firm has previously had two reconstruction applications rejected by courts.

“I don’t believe a bankruptcy will provide a penny to anyone,” Bagge said in a statement. “A successful reconstruction, according to the plan we have laid out here and in earlier releases and interviews, provides claimants with a good chance of redeeming a part of of their claims.”

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