Australian private credit funds are trying to contain panic among investors, after the collapse of property developer Bathla Group sparked fears that the industry’s big bet on the property sector is going south.
Bathla’s failure has raised the specter that more builders heavily indebted to private lenders could run into trouble as the industry struggles with falling home prices and higher construction costs. The outcome of Bathla’s insolvency has taken on outsize significance — in response, even a private credit fund with no exposure to the company put new limits on how much investors can pull out.
The 29-year-old developer is now trying to line up emergency funding. “We probably need a deal and a commitment in place” by Tuesday, said Stephen Longley, head of Teneo’s Australia financial advisory business, which is overseeing Bathla’s restructuring. He is trying to unite divided lenders to raise A$20 million ($14 million) to keep the company operating for the next five weeks.
While US private credit funds stumbled earlier this year over risks related to software firms and artificial-intelligence companies, the reckoning in Australia is centered on its slowing housing market. Like many local property developers, Bathla relied heavily on non-bank lenders for funding. The company borrowed about A$3.3 billion from more than 40 private credit funds, according to Longley.
“We are watching this very carefully,” said Jonathan Armitage, chief investment officer of Colonial First State, a Sydney-based pension and wealth manager overseeing around A$179 billion ($128 billion). Armitage doesn’t anticipate a full-blown crisis, but said Bathla’s troubles reflected pressure on the economy from elevated interest rates, falling property prices and lackluster sentiment.
The Australian Securities and Investments Commission has repeatedly expressed concern about accumulating risks. “We do think this is the first real test for private credit,” ASIC’s chair Sarah Court said last week, referring to Bathla and other recent instances of stress in the private debt market. “What we’re seeing is in Australia the first significant cracks,” she said.
For private credit fund managers, the risk is that Bathla’s distress infects the broader A$200 billion industry.
After Bathla declared its insolvency, MA Financial Group Ltd., an A$15.5 billion asset manager, said it would temporarily limit monthly redemptions from one of its real estate credit funds to 1%, even though it hadn’t lent any money to Bathla. The move is a “proactive measure in response to the potential for increased redemption activity,” said Chris Wyke, the company’s joint chief executive officer.
CVS Lane Capital Partners and Centuria Bass, two of Bathla’s biggest lenders, have also restricted withdrawals, local media reported. CVS Lane did not respond to questions and a phone call to Centuria was not answered after business hours.
“We will see more managers limit redemptions for investors to avoid being put in a position to sell performing loans to satisfy some investors who want to exit,” said Daniel Erez, managing partner at real estate private equity firm Pindara Partners, which isn’t one of Bathla’s creditors.
Australian property developers turned to private lenders several years ago after banks slowed their lending. These funds were happy to take up the mantle during a buoyant market: around half of the private credit market is made up of real estate assets. But home prices have fallen recently due to higher interest rates and tax reforms that prevent investors from buying certain types of property.
About 45 of Bathla’s more than 200 projects are currently under construction, according to Longley. They could yield as many as 2,500 new homes, mostly by March 2027. Some of those projects are weeks from being completed, he said, while fewer than ten have been seized by receivers so far.
The problem, Longley said, is that there isn’t even enough cash to keep the company running beyond this week, much less determine how much is needed to finish the outstanding projects. Some of the group’s staff haven’t been paid for eight weeks.
“I don’t have money to pay payroll on Thursday,” Longley said. “The clock is ticking.”
Written by: Sharon Klyne, Low De Wei, and Richard Henderson — With assistance from Dipika Lalwani @Bloomberg
The post “‘First Real Test’: Australia Property Fiasco Puts Private Credit on Edge” first appeared on Bloomberg