Bonds News

UPDATE 2-Australia govt says eyes crisis fund for business

(Updates with finance minister quotes, background) CANBERRA, Jan 22 (Reuters) - The Australian government said on Thursday it was considering a crisis fund to help commercial property investors refinance foreign bank loans if they are unable to roll them over in the next two years.

Global credit markets are in deep freeze and Australian Prime Minister Kevin Rudd has already warned that foreign banks might be unwilling to lend into smaller markets like Australia, raising the risk that companies will struggle to refinance their loans.

“If there is to be a withdrawal of funding from the Australian financial system, then the Australian government stands ready to work with Australian business and regulators to ensure there is full flow of credit to Australian businesses,” Swan told a news conference in Sydney.

Asked whether the government was considering a crisis fund if foreign banks withdrew lending, Australia’s top financial minister replied “that was an issue that is under consideration”.

But he added: “Foreign banks have not withdrawn yet”.

The fund would involve the government lending directly to businesses, with money raised partly through the sale of government bonds, The Australian newspaper reported on Thursday.

Half the money for the fund would come from the country's top four banks -- National Australia Bank NAB.AX, Commonwealth Bank of Australia CBA.AX, Westpac Banking Group WBC.AX and Australia & New Zealand Banking Corp ANZ.AX -- a newspaper reported.

Foreign banks represent more than half of the A$285 billion in syndicated loans issued to Australian businesses since 2006, Rudd has said. Of the total loans remaining, A$75 billion ($49 billion) fall due over the next two years, but it is unclear how much of that falls due to foreign banks.


Australian Finance Minister Lindsay Tanner, who manages government spending, said the fund would be to help commercial property investors with strong businesses but who would have difficulty refinancing loans if their foreign lenders pulled out.

UBS estimates syndicated debt makes up 35 percent of total debt in the real estate investment trust (REIT) sector, and of that, offshore lenders provide 71 percent by value.

Tanner said details on the fund would be available in the very near future but there were no plans to expand support to other sectors.

“It’s unclear yet to what extent there is a problem,” Tanner told reporters in Melbourne. He said the issue had been raised by Australian banks and he was not aware of any specific companies approaching the government for help.

Emergency property sales are in store in Japan, Australia and India as banks refuse to roll over debt in 2009, forcing landlords to raise funds or go out of business, say analysts.

Although banks in the Asia-Pacific region are not hobbled by the toxic assets that have paralysed their Western counterparts, they are cutting exposure to falling property markets, they say.

In Australia, large real estate investment trusts (REITs) raised A$5.5 billion of equity in 2008 to cut debt, including Mirvac MGR.AX and ING Office Fund IOF.AX.

But the sector needs another A$20-30 billion of debt refinancing or other funding in two years.

JP Morgan estimates the 22 most highly leveraged Australian REITs have some $32 billion worth of debt, which accounts for 94 percent of their enterprise value. The 22 include Macquarie CountryWide MCW.AX and Tishman Speyer Office TSO.AX.

Bank lending problems have already forced the United States and European governments to look at measures to ease the credit crunch. The UK government this week unveiled its second bailout for its ailing banks in just three months.

“It’s not certain there will be a serious gap, but given what’s happening to many major foreign banks internationally, there is clearly a risk that we have to be concerned about,” Tanner told local radio earlier.

The Australian government has already set up a A$2 billion fund to support auto sales after funding for car buyers dried up with the exit of GE Finance GE.N and General Motors Corp's GMAC GM.N from Australia. ($1=1.535 Australian Dollar) (Reporting by Rob Taylor in Canberra, Sonali Paul in Melbourne, Eriko Amaha in Sydney, Mariko Katsumura in Tokyo; Writing by Michael Perry; editing by Neil Fullick)