Asian developers turn to Islamic funds amid credit crunch
Reuters in Singapore and Hong Kong Sep 10, 2008
When Cambridge Industrial Trust declared itself Singapore’s first sharia-compliant property trust in July, many analysts dismissed it as a gimmick.
But the move is symbolic of a tougher financing landscape, where initial public offerings, mortgage-backed securities and bond issues have become prohibitively expensive due to the global credit crisis.
Increasingly inventive, Asian property companies are turning to deep-pocketed Middle Eastern investors or trying to launch their own funds to keep their projects on track.
Southeast Asia’s second-biggest developer City Developments is following Cambridge’s lead, and hopes to issue the first tranche of a US$700 million Islamic bond programme by the end of the year.
“Where else can I look for a more competitive, alternative source? That’s Islamic capital,” said Goh Ann Nee, the chief financial officer of Singapore’s City Developments.
“There’s trillions of dollars just sitting there looking for investments, and unless you’re sharia-compliant, you can’t just knock on their door and say `invest in my company or product’,” she said.
Financing based on sharia, or Islamic law, requires that gains be derived from ethical and socially responsible investments and frowns on interest-based banking.
While Islamic financing has side-stepped the credit crunch, Asian property has not, with banks scaling back their exposure to real estate firms, especially in highly leveraged markets in Japan and Australia.
At the same time, equity and bond issuance has fallen by the wayside as markets plunged.
Some 30 Chinese developers have had to shelve share sales as their listed rivals saw share prices slashed 70 per cent since November.
Property trust Saizen Reit, which owns Japanese apartment blocks, has seen its funding costs rise by about 70 basis points in the last year, because it has had to approach a European bank for a loan rather than issue commercial mortgage-backed securities (CMBS).
“Banks now have no appetite for risk so the door to the CMBS market has closed,” said Raymond Wong, an executive director of the firm that manages Saizen Reit.
“It was a big disappointment to us, but was a wake-up call to cultivate relationships with balance sheet lenders, banks that lend from their own pockets.”
Many developers are trying to mimic a model followed by Singapore developer CapitaLand for the last five years - injecting assets into wholesale funds, attracting other investors.
If the funds own commercial buildings, they can then be spun off into real estate investment trusts, which have caught on in Asia over the last six years but lost their lustre because of the credit crunch and rising inflation and interest rates.
“We’re seeing the number of unlisted fund raisings increase dramatically,” said Anthony Ryan, the head of Asia property investment banking at JP Morgan.
“This will become an important source of non-dilutive capital for developers and a diversification away from the volatile listed markets.”
Among developers looking to establish funds businesses are Chinese firm Shui On Land, and Unitech and DLF in India.
But international investors are wary about potential conflicts of interest if a developer manages its own fund.
In India, friction has arisen because developers want to sell land into funds at current market prices for an instant profit. But investors, saying they want to share the risks and rewards, want plots to be injected at the lower acquisition value.
“Plenty come to us trying to set up a fund, but without a track record or fund management skills, it’s very difficult because of conflicts of interest,” said Henrik Broeker, a national director for Asia capital markets at consultants Jones Lang LaSalle.
“I’ve told them to look for private equity, because it makes more sense,” he said. “They can go later to the international market to set up a fund with the private equity house.”
The winners are likely to be giant funds that have set up shop in Asia, including those run by Citi, Morgan Stanley and Blackstone Group, which are keen to pick up assets or enter joint ventures on the cheap.
Loh Chin Hua, the managing director of Alpha Investment Partners, the fund management unit of Singapore’s No3 developer Keppel Land, said the credit crunch had made it easier to find willing partners among developers.
“I don’t think we can replace bank financing in a big way,” said Mr Loh, whose funds manage more than US$2.8 billion in Asian property assets. “But because bank financing is tighter now ... I suspect some developers might want to share their risks, so they may approach funds like us.”
1 comment:
Asian developers turn to Islamic funds amid credit crunch
Reuters in Singapore and Hong Kong
Sep 10, 2008
When Cambridge Industrial Trust declared itself Singapore’s first sharia-compliant property trust in July, many analysts dismissed it as a gimmick.
But the move is symbolic of a tougher financing landscape, where initial public offerings, mortgage-backed securities and bond issues have become prohibitively expensive due to the global credit crisis.
Increasingly inventive, Asian property companies are turning to deep-pocketed Middle Eastern investors or trying to launch their own funds to keep their projects on track.
Southeast Asia’s second-biggest developer City Developments is following Cambridge’s lead, and hopes to issue the first tranche of a US$700 million Islamic bond programme by the end of the year.
“Where else can I look for a more competitive, alternative source? That’s Islamic capital,” said Goh Ann Nee, the chief financial officer of Singapore’s City Developments.
“There’s trillions of dollars just sitting there looking for investments, and unless you’re sharia-compliant, you can’t just knock on their door and say `invest in my company or product’,” she said.
Financing based on sharia, or Islamic law, requires that gains be derived from ethical and socially responsible investments and frowns on interest-based banking.
While Islamic financing has side-stepped the credit crunch, Asian property has not, with banks scaling back their exposure to real estate firms, especially in highly leveraged markets in Japan and Australia.
At the same time, equity and bond issuance has fallen by the wayside as markets plunged.
Some 30 Chinese developers have had to shelve share sales as their listed rivals saw share prices slashed 70 per cent since November.
Property trust Saizen Reit, which owns Japanese apartment blocks, has seen its funding costs rise by about 70 basis points in the last year, because it has had to approach a European bank for a loan rather than issue commercial mortgage-backed securities (CMBS).
“Banks now have no appetite for risk so the door to the CMBS market has closed,” said Raymond Wong, an executive director of the firm that manages Saizen Reit.
“It was a big disappointment to us, but was a wake-up call to cultivate relationships with balance sheet lenders, banks that lend from their own pockets.”
Many developers are trying to mimic a model followed by Singapore developer CapitaLand for the last five years - injecting assets into wholesale funds, attracting other investors.
If the funds own commercial buildings, they can then be spun off into real estate investment trusts, which have caught on in Asia over the last six years but lost their lustre because of the credit crunch and rising inflation and interest rates.
“We’re seeing the number of unlisted fund raisings increase dramatically,” said Anthony Ryan, the head of Asia property investment banking at JP Morgan.
“This will become an important source of non-dilutive capital for developers and a diversification away from the volatile listed markets.”
Among developers looking to establish funds businesses are Chinese firm Shui On Land, and Unitech and DLF in India.
But international investors are wary about potential conflicts of interest if a developer manages its own fund.
In India, friction has arisen because developers want to sell land into funds at current market prices for an instant profit. But investors, saying they want to share the risks and rewards, want plots to be injected at the lower acquisition value.
“Plenty come to us trying to set up a fund, but without a track record or fund management skills, it’s very difficult because of conflicts of interest,” said Henrik Broeker, a national director for Asia capital markets at consultants Jones Lang LaSalle.
“I’ve told them to look for private equity, because it makes more sense,” he said. “They can go later to the international market to set up a fund with the private equity house.”
The winners are likely to be giant funds that have set up shop in Asia, including those run by Citi, Morgan Stanley and Blackstone Group, which are keen to pick up assets or enter joint ventures on the cheap.
Loh Chin Hua, the managing director of Alpha Investment Partners, the fund management unit of Singapore’s No3 developer Keppel Land, said the credit crunch had made it easier to find willing partners among developers.
“I don’t think we can replace bank financing in a big way,” said Mr Loh, whose funds manage more than US$2.8 billion in Asian property assets. “But because bank financing is tighter now ... I suspect some developers might want to share their risks, so they may approach funds like us.”
Post a Comment