Subprime woes hit Aussie fund, ripple effect seen

By Richard Pullin - Analysis

SYDNEY (Reuters) - Half a world away from the U.S. subprime market's woes, Australian investors are scrambling to uncover what is happening at homegrown hedge fund Basis Capital and Asia's bankers are bracing for credit markets to dry up.

Just as Wall Street firm Bear Stearns BSC.N confessed two funds specializing in risky subprime loans had "very little value," Basis Capital warned some of its investors could receive less than 50 cents to the dollar.

Basis Capital may be an isolated case in Asia, where hedge funds mostly focus on emerging market stocks, but market players warn the U.S. subprime crisis is expected to have a ripple effect.

"Lenders of all sorts will require more collateral, there will be tighter requirements on lending, leverage ratios will come down," said Peter Douglas, head of Singapore-based hedge fund consultancy GFIA.

Emerging debt has held up well, but subprime woes could hurt structured credit markets, said Robert da Silva, Asia Pacific fixed income fund manager for Principal Global Investors in Sydney.

"At the moment, it's not having a dramatic impact on traditional emerging market bonds. It's had more of an impact on Asian demand for structured credit," he said. "Issuance of these products will struggle and it will be more difficult to do these deals than before."

The Basis Capital saga also spells trouble for its creditors, who might be left holding the bag. They include JPMorgan (JPM.N: Quote, Profile, Research, Stock Buzz), Citigroup (C.N: Quote, Profile, Research, Stock Buzz), Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz), Bear Stearns and Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz), according to media reports.

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