Serneke secures financing for Karlatornet in a structural transaction with Balder

Summary of the transaction

• On December 17, 2020, Serneke and Balder have entered into a share purchase agreement in which Balder acquires 50 percent of the shares in the JV Company
• Through shareholder loans from the parties combined with a construction credit facility of approximately SEK 3 billion from Nordea, Karlatornet will be fully financed
• When fully completed, total project value for Karlatornet is estimated to at least SEK 6.4 billion and total project budget at approximately SEK 5.5 billion
• With this transaction, the construction of Karlatornet will resume immediately and, in accordance with an updated timeline, occupants are scheduled to start moving in during the second half of 2023
• As part of the structural transaction, Balder has subscribed for 2,300,000 series B shares in Serneke at a subscription price of SEK 53 and thereby becoming the owner of approximately 8,2 percent of the shares and 3,1 percent of the votes in Serneke
• The transaction also includes Serneke selling building rights to Balder of 100,000 square meters in total distributed between 10 projects at a value of approximately SEK 3.2 billion

Ola Serneke, CEO of Serneke Group

"Through this transaction with Balder, we do more than just securing the means for completing Karlatornet, the most important project in our history. This is a game-changer for our company. This type of transaction, combined with the structural organizational changes and measures we have implemented over the past year, creates the conditions for our company to turn a difficult period into something very positive for the future."

"Bringing in Balder as a partner in Karlatornet is an optimal solution for us, for the project and for the city. In Balder, we have a stable long-term partner with strong local roots and with the same strong faith in the project and the development of the city as ourselves. Together, we will now continue the realization of this unique urban development, which will strengthen the City of Gothenburg and hopefully create pride among the people."

Erik Selin, CEO of Balder

"It feels very gratifying to be a part of the completion of such a unique urban development project. Especially the fact that Karlatornet is included as part of a long-term business with Serneke, including almost 1,400 rental apartments and approximately 12,000 square meters commercial premises feels extra gratifying, says Erik Selin, CEO of Balder."

The transaction in brief

On December 17, 2020, Serneke and Balder entered into a share purchase agreement in which Balder acquires 50 percent of the shares in the JV Company. Serneke retains all its invested capital of approximately SEK 1.5 billion in the project through interest-bearing shareholder loans. Through additional shareholder loans from Balder of approximately SEK 0.5 billion, combined with a credit facility of approximately SEK 3 billion and proceeds from residential sales, Karlatornet will be fully financed. Nordea has provided a positive credit committee decision and complete documentation shall now be produced by the parties. Customary terms and conditions are applicable for the credit facility. For the commitment of securing full financing, Balder's shares entitle SEK 0,6 billion in preferred dividend before repayment of Serneke's shareholder loan and expected profit from the project.

When Karlatornet is completed, it will be the Nordic region's tallest skyscraper at 73 stories and at a height of 245 meters. Karlatornet will contain slightly more than 600 apartments, a Clarion hotel with approximately 300 rooms, slightly more than 8,000 square meters of office and retail space and an observation deck. Today more than 80 percent of the apartments in Karlatornet have been sold. According to the agreement with Balder, Serneke secures the remaining unsold apartments, while Balder gains an option to acquire the hotel and office spaces within Karlatornet. On full completion, the total project value is estimated to at least SEK 6.4 billion.

Karlatornet's total budget amounts to approximately SEK 5.5 billion and the building currently reaches eight stories above ground. To date, all the work has been conducted within budget, including constructing the complex foundation. Serneke remains the main contractor and, in connection with the transaction, enters into a turnkey contract with the JV Company for the remaining project development and contract work at a fixed price of approximately SEK 3.2 billion. The value of the order is included in Serneke's order book for the fourth quarter of 2020. Serneke has provided guarantees and pledged assets in Karlastaden as security for the completion of Karlatornet. The transaction means that construction, which has been held at a minimum since April this year, will resume immediately. According to the updated timeline, occupants are expected to start moving into the tower during the second half of 2023.

Following the transaction, Serneke will remain the sole owner of the remaining building rights in Karlastaden, including approximately 200,000 square meters of developable area for mixed-used divided into seven blocks. Serneke is now continuing the process of completing the development for the rest of the district, which includes intensified dialogues with potential investors and partners.

Balder becomes a shareholder in Serneke

As part of the structural transaction, Serneke's Board of Directors has today decided to issue a total of 2,300,000 series B shares to Balder which thereby becomes the owner of 8,2 percent of the shares and 3,1 percent of the votes in the company after dilution . The shares are issued at SEK 53 per share, which gives Serneke a cash injection of approximately SEK 122 million. The decision is within the framework of an existing authorization from the Annual General Meeting on May 5, 2020. The new shares will not entitle to participation with preferential right in the approved rights issue described below.

Balder acquires building rights

The transaction also includes Serneke's agreement to sell building rights to Balder for a total of 100,000 square meters distributed between 10 projects, mainly located in Stockholm, Gothenburg and Malmö. The agreement includes project development and contracting assignments for Serneke to complete approximately 1,400 rental apartments and community properties, such as school and government buildings. The transaction is deemed to have a total underlying property value, including investment support, of approximately SEK 3.2 billion and is expected to generate a positive cash effect to Serneke of approximately SEK 250 million in total. According to plans, the projects will be transferred on an ongoing basis in 2021, whereby Serneke once transfers take place intends to revert and report financial effects as part of its regular reporting. Most of the apartments will be completed in the period 2023-2025.

Serneke's Board of Directors approves a rights issue

Supported by the authorization granted by the Annual General Meeting on May 5, 2020, Serneke's Board of Directors has decided on a rights issue of up to 3,204,780 series B shares at a subscription price of SEK 53 per share with preferential rights for existing shareholders, which adds approximately SEK 170 million to Serneke before transaction costs. The issue proceeds enable Serneke to operate the business with more flexibility with conditions for long-term development with profitable growth and stability. For more information, see separate press release.

[1] Considering the fully guaranteed rights issue.