Heimstaden - comments

Ivor Tollefsen, the controlling shareholder in Heimstaden AB, via Fredensborg AG, has spoken to the press outlining his willingness to sell shares in Heimstaden AB as part of the refinancing.  We see this statement as the first acknowledgement that Heimstaden AB’s taken in Heimstaden Bostad will be diluted under any proposed liquidity raise at Bostad level.  In the interview, Tollefsen acknowledges that the likely buyer will be institutional money “with a long-term strategy to invest in European residential real estate”, which we take as code that it won’t be a public offering and just an extension of the existing shareholder agreement Heimstaden AB, Alecta and others currently operate under.  

Separately, Tollefsen accepts the likelihood of a rating downgrade to BBB-,  but similar to our discussions with management, there is no mention of further downgrades to sub-investment grade.  We had expected the rating agencies to have downgraded to BBB- already, and although we think the market has already priced in this downgrade, it is our expectation the Company would remain on negative watch.  It is unclear as to what  LTV and ICR ratios would justify further downgrades and we will keep a close watch on any guidance from rating agencies on this issue.