European Central Bank takes rare step with sale of Adler bond

THE European Central Bank (ECB) took a rare step of selling a corporate bond from its quantitative-easing portfolio that it didn't need to offload, in exiting the debt of embattled German landlord Adler Group.

The ECB is the latest holder reducing exposure to the landlord in recent months and underscores mounting investor concerns about Adler's financial position. The debt was previously eligible for purchase as part of its bond-buying programme.

"The Adler bond in question no longer fulfils the Eurosystem collateral framework eligibility criteria and is therefore no longer CSPP-eligible," spokesperson William Lelieveldt said in a written response to a request for comment.

He said the operation was in line with the legal framework underpinning the ECB's bond buying, where the monetary authority "may choose, but is not required, to sell its holdings in the event of a loss of eligibility".

In the past, the ECB had mostly sold bonds after finding out they didn't meet the QE programme's purchase criteria. Another high-profile case of exiting bonds of a troubled issuer came in early 2018 when it ditched securities of Steinhoff International Holdings after the company was downgraded to junk.

Adler's 2024 note that was held by the ECB is indicated at distressed levels of 66.4 US cents on the euro, based on data compiled by Bloomberg.

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It traded just below face value around the time of the bond's placement when the ECB bought part of the 400 million euro (S$584 million) issue. Adler is now rated CCC with a negative outlook by S&P.

Adler has undergone large-scale asset sales and a forensic probe this year after being accused by short sellers of defrauding shareholders and inflating asset valuations. Some of Adler's investors hired law firms and organised creditor groups in recent months to strategize on plans to regain any value in the bonds.

Adler declined to comment on the ECB's sale of its bonds. BLOOMBERG