Heimstaden - comment

Heimstaden AB have just announced the sale of their Icelandic assets (and related borrowings) to Fredensborg AS (its controlling shareholder) with proceeds coming in two parts - an Initial SEK1.5bn plus a subsequent deferred payment of c. SEK 900-1000m subject to the disposal program already underway. Heimstaden AB still has some exposure to the upside via a performance-based earn-out. Because the transaction is with a related party, KMPG has given a fair opinion on the transaction. 

This transaction gives Heimstaden AB cash and therefore two options to spend it: 1) Participate in an equity raise at Heimstaden Bostad and/or 2) Attempt a further liability management exercise of its own balance sheet by re-tendering for its unsecured debt. That said, the statement does categorically state they will use it for liability management purposes.  The vast majority (all) of AB's secured debt is expected to travel with the Icelandic assets.  LTV for the unsecured bonds decreases on the back of this transaction. 

Note: The minimum capital raise required at Heimstaden Bostad according to our model is c. SEK15bn. Even if all the cash were to be used to participate in a Bostad rights issue, Heimstaden AB would have a shortfall of SEK2.5 - 3.0bn on their pro-rata share of c.SEK 5bn.