BT : Funding rethink for developers after crisis

Business Times - 23 Jun 2010

Funding rethink for developers after crisis

By UMA SHANKARI

THE global financial crisis made CapitaLand rethink its strategy for funding expansion, the property group's chief investment officer Wen Khai Meng said yesterday.

CapitaLand learned that it cannot count on just the capital markets for finance after those markets froze during the crisis, Mr Wen said.

So the developer is now looking at alternative forms of funds - especially private equity - for its growth needs, he said.

Speaking during a panel discussion at the Real Estate Investment World Asia conference on the lessons that real estate developers picked up from the crisis, he also said that it brought home the need to diversify - geographically and among its various business units.

CapitaLand will continue to maintain a good balance among its various income streams - income from property trading, which involves building and selling homes, as well as recurring income from its investment assets and fund management activities, he said.

Other developers echoed the view that the crisis made them re-evaluate their financing needs.

'The lesson we took out of that (the crisis) is to make sure we have sufficient liquidity and sufficient reserves,' said Thio Gim Hock, chief executive of Overseas Union Enterprise (OUE). When the crisis hit, OUE often had to go back to the table to negotiate bank loans as it delayed property launches and construction work. Banks were eventually willing to offer fresh loans after considering the new time frame - but at much higher interest rates.

And so like CapitaLand, OUE is looking to diversify its sources of funding. Mr Thio said that the company is now looking beyond bank loans, to instruments such as convertible bonds. OUE this month scrapped plans to issue up to $200 million dollars of convertible bonds, citing market conditions.

The local hotel and property group is also looking to diversify its income base. Mr Thio said that it would like to get as much as 60 per cent of its income from investment assets eventually.

Most representatives on the panel also admitted that they missed opportunities during the financial crisis. 'We were hoping to pick up some bargains, but before we knew it, it (the crisis) was all over,' said Mr Wen.

Mr Thio said he identified some good opportunities during the crunch but could not secure finance to take advantage of them.

Donald Choi, managing director of Hong Kong's Nan Fung Development, who was also a panellist, similarly said that his company should have been more aggressive, as the window of opportunity was very short.

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