Key Takeaways
- • Ares Management's Peter Graf warned that rising rates could intensify stress in Australia's AUD$200bn private credit market, particularly among lenders exposed to the struggling property sector, according to Bloomberg.
- • The Reserve Bank of Australia has raised rates four times this year to 4.6%, increasing financing costs for real estate borrowers.
- • Senior real estate loans priced at 8-9% six months ago could now command yields of 11-12%, per Graf.
- • The August insolvency of Sydney developer Bathla Group, owing approximately A$3.4bn mainly to private debt funds, has already prompted redemption restrictions at several Australian private credit funds.
- • Graf does not anticipate a systemic credit squeeze, while Blackstone Credit and Insurance and Cbus Super signal the market will work through exposures and tighten underwriting.
Summary
Ares Management has warned that rising interest rates could intensify pressure on Australia's AUD$200bn private credit market, particularly among lenders exposed to the country's struggling property sector, according to a report by Bloomberg. Peter Graf, partner and head of Asia direct lending at Ares, said higher borrowing costs are increasing risks for real estate borrowers, noting that Australia's central bank has raised rates four times this year to 4.6%. Speaking at the Citi Australia & New Zealand Investment Conference in Sydney, Graf said lenders will need to scrutinise underlying asset quality and borrowers' financial positions as credit stress becomes more apparent.
Property-backed lending, which accounts for a significant proportion of the market, is under the most acute pressure. Persistent inflation and higher rates have raised construction and financing costs, while residential property prices have weakened. Graf reportedly said senior real estate loans priced at 8-9% six months ago could now command yields of 11-12%, reflecting tighter financing conditions.
The warnings follow the collapse of Sydney property developer Bathla Group in August, which entered insolvency owing approximately A$3.4bn, primarily to private debt funds. Several Australian private credit funds have since restricted investor redemptions, while lenders including Goldman Sachs and UBS have become more selective in financing specialist credit funds. Despite the mounting pressure, Graf reportedly does not anticipate a systemic credit squeeze.
Mark Glengarry, head of APAC Private Credit Strategies at Blackstone Credit and Insurance, said some projects may have received financing that would not have been available under more stringent lending conditions, but expects the market to work through these exposures. Anne Moal, head of direct debt and illiquid credit at Cbus Super, said the pension fund has maintained its underwriting standards but is finding fewer attractive construction financing opportunities.
Property-backed lending, which accounts for a significant proportion of the market, is under the most acute pressure. Persistent inflation and higher rates have raised construction and financing costs, while residential property prices have weakened. Graf reportedly said senior real estate loans priced at 8-9% six months ago could now command yields of 11-12%, reflecting tighter financing conditions.
The warnings follow the collapse of Sydney property developer Bathla Group in August, which entered insolvency owing approximately A$3.4bn, primarily to private debt funds. Several Australian private credit funds have since restricted investor redemptions, while lenders including Goldman Sachs and UBS have become more selective in financing specialist credit funds. Despite the mounting pressure, Graf reportedly does not anticipate a systemic credit squeeze.
Mark Glengarry, head of APAC Private Credit Strategies at Blackstone Credit and Insurance, said some projects may have received financing that would not have been available under more stringent lending conditions, but expects the market to work through these exposures. Anne Moal, head of direct debt and illiquid credit at Cbus Super, said the pension fund has maintained its underwriting standards but is finding fewer attractive construction financing opportunities.
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