Property firms circle back to local banks

Source : Business Times - 5 Feb 2009

Property companies in Asia have turned back to local banks as other sources of funding become more scarce, according to a new report from Macquarie Research.

The commercial mortgage-backed securities (CMBS) and corporate note markets are effectively closed and US and European banks are also withdrawing from the market, the firm’s analysts said in a Feb 2 report.

This means that some 73 per cent of Asia’s real estate debt is now bank debt compared with 63 per cent 12 months ago.

By contrast, bonds and notes have decreased as a proportion - from 13 per cent in January 2008 to 8 per cent in January this year.

‘We expect this trend to continue as banks look to take security over specific assets at acceptable loan to value ratios (LVRs) and chunky margins,’ the report said.

Macquarie Research also noted that feedback from its regional property team and industry contacts suggests that refinancing conditions are improving - but ever so slowly. However, lending criteria have tightened up considerably.

The report also noted that real estate companies in Asia have put off refinancing or have not been able to refinance short-term debt and, as a result, debt with maturity of less than 12 months as a proportion of total debt is now 21 per cent, compared to 16 per cent a year ago.

But gearing across Asian real estate stocks has not materially increased over the past 12 months, and is forecast at 46 per cent for FY2009, Macquarie Research said.

Looking specifically at Singapore, Macquarie Research said that credit conditions became progressively tighter over 2008 as banks became more careful about credit quality.

‘Recent feedback from S-Reit (Singapore real estate investment trust) managers is that the local banks and locally incorporated foreign banks (HSBC, Standard Chartered, Maybank and Citibank) are still lending at higher spreads of 150-200 basis points,’ the report noted.

The ‘better quality’ names, such as CapitaCommercial Trust and City Developments, are securing loans on reasonable terms, the report said.

Cambridge Reit, however, ’struggled’ last year and only managed to refinance at 6-7 per cent interest rates, Macquarie said.

Macquarie Research noted that the situation is similar in Hong Kong, where banks have become more cautious but are still comfortable with lending to ‘high quality’ names.

But for the S-Reit sector as a whole, the ’sense of desperation for the sector has now diminished significantly’, Macquarie Research noted.

The report also pointed out that Keppel Land has to refinance a majority of its debt in the next 12 months.