Lender conversations in Asia-Pacific are ‘very location-specific’

Refinancing challenges for borrowers in the region can differ widely depending on the market where they are investing.

The $2 trillion in global loan maturities will have varying implications for borrowers in Asia-Pacific over the coming years, members heard at the PERE Network Asia Summit at the Shangri-La Singapore this week.

“I think the type of conversation that you’re going to have with your lenders is very location-specific,” said Benjamin Lee, managing partner at Hong Kong-based manager Phoenix Property Investors, which invests in the developed Asia markets of Japan, Australia, Hong Kong and South Korea.

In Japan, for example, borrowers generally should not have any problems refinancing. “The yield gap is excellent,” he said, speaking on the opening panel discussion on the first day of the conference. “If you have a good track record in Japan, generally you can borrow for a long time – let’s say a five-year fixed rate – and you’re in a good position.”

By contrast, a refinancing situation in Hong Kong will be more difficult, given the interest rate in the market is now approaching 6-7 percent, while yields have remained relatively low. “So we have a lot of cashflow-related issues that people need to work through,” Lee said.

However, he pointed out that borrowers in Hong Kong typically have been conservatively levered, so he did not expect any systemic issues in the market.

As for Australia, “I think there are pockets of issues,” Lee said. “However, Australia is blessed by the fact that it has one of the most active non-bank credit markets available. So there are other sources of financing.”

Even in China, policy banks have become more supportive of the country’s troubled real estate sector, while interest rates have also come down, he added.

Meanwhile, Asia-based investors that are active globally have had to engage in discussions with their lenders overseas. For example, Samsung SRA Asset Management, the asset management arm of Korean insurer Samsung Life, has exposure in its global real estate portfolio to Europe and the US. “We have had discussions with lenders on rate cuts and loan extensions, and cap-ex loan discussions with lenders,” said global chief investment officer Jae Yeon Kim. “Fortunately, lenders have co-operated with us.”

Samsung, however, is refinancing at a lower loan-to-value ratio than in the past, due to currency hedging and the firm’s required rate of return for its investors, he said.

Overall, “I don’t really think that we are in the same mode of crisis as we were” during the Asia financial crisis of 1997, Lee said. In the aftermath of that crisis, regulators have ensured that the region’s banks are generally well-capitalized relative to the large US banks, he noted.

Moreover, loan-to-value ratios in the region are 50 percent, compared with around 60 percent in the US and Europe. “So there’s some room for us to maneuver,” Lee said. Lending growth is also around 6 percent – half of the 12 percent growth rate before the global financial crisis.

Additionally, working from home has had less of a negative impact on APAC office markets than those in the US and Europe. With the office vacancy rate less than 5 percent in markets such as Korea and Japan, the region’s lenders also have less exposure to problem loans linked to office assets with rising vacancies and falling cashflows.

“I think relatively speaking, we’re in a better position than all the crises that we’ve experienced before,” Lee remarked.