David:
Although some firms have comeunder pressure, the banks have beenquite patient in Asia, and one explanationof why this may be so is because lessonswere learned in the Asian financial crisisin the late nineties. I think that’s partiallytrue, but the bank’s patience was alsohelped by the fact there was no currencycrisis in Asia this time.
Yue:
In Asia, distress never showed upon the hard asset front. Developers,learning from previous cycles, generallyhave much lower gearing at present.
Yue:
Banks generally preserved lendinglines for their best, existing customers.Aligning ourselves with strong localpartners ensures our access to credit.Through the crisis some propertyinvestment firms took on too muchleverage and risk, and were badly hurt.
Has investor risk appetite returned?
David:
They are looking more at thecashflows that emerge from assets, andthat applies not just for Reits, but morebroadly.
Yue:
Developers with large landbanks andmoderate leverage were under pressure asthey had undergone a cash squeeze. Butthey are now back out buying land again,and building landbanks. Many were savedby the slush of bank liquidity which camealong with the stimulus packages that hitthe markets.
Sullivan:
From a risk perspective, someinvestors have gone into their shell. Weare trying to allocate capital to companieswhere we believe they have the rightcapital structure. For example, not simplyrelying on short-term debt throughout adevelopment cycle.
Calvert:
I’m hearing different messages.Markets have been choppy for the lastcouple of months, so it may not beover quite yet. In Singapore we saw atremendous recovery in the first half of thisyear. With the emergence of the Europeansovereign debt issues, and the slowdown inChina’s growth cycle, there’s still a fair bitof caution out there and this may present achallenging second half of 2010.Our investors are saying that capitaland risk management should remaina top priority, and we agree. That said,some unit-holders have said to me thatthey’d be happy to see the trust’s gearingincrease. That surprised me given howrecent the crisis was. There are mixedviews, but ‘keep it steady’ is the mainmessage, and err on the side of caution.
Sullivan:
I’d also say that people arelooking for economies of scale fromplatforms. Where there are a lot of smallvehicles, there’s the opportunity forconsolidation and reduce expense ratiosfor unit-holders. Sensible M&A is oneaspect I’d like to see eventuate in manyAsian markets.Banks are better capitalized and havecertain limits on their real-estateexposure. Throughout the crisis, wewere able to get project level finance inChina, Macau, India and Thailand. Thebanks were lending because there wasplenty of liquidity.
David
: When we were UK listed, mostof our lenders were European. We’venow refinanced 80% of our debt withAsian banks. For good projects and goodsponsors, financing is still there.
“People are looking for economiesof scale from platforms. Where thereare a lot of small vehicles, there’s theopportnity for consoliation.”
Luke Sullivan: Allocating to companies with the right capital structure
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