Thursday 19 April 2018

Distressed assets are up for grabs all around the globe in €300bn offload

The picturesque town of Split in Croatia where bargain-hunters are eyeing up distressed assets.
The picturesque town of Split in Croatia where bargain-hunters are eyeing up distressed assets.

Alastair Marsh

Ireland is not the only place attracting bargain hunters following economic collapse. Skaters gliding across the ice rink at the five-star Le Meridien Lav hotel are unwitting extras in the final acts of the financial crisis as they practice their turns on the shores of the Adriatic Sea.

Paying as much as €700 a night, they've kept the Split, Croatia-based hotel afloat since it was seized by Hypo Alpe-Adria-Bank International when the owners failed to manage repayments on about €50m of loans.

The hotel will be sold this year as Europe's banks seek to offload a record €60bn of bad debts at discounts as high as 95pc, according to PricewaterhouseCoopers.

Sales of assets from Paris office blocks to German-financed chemical tankers are being compelled by the European Central Bank's pledge to restore trust in the banking sector by scrutinising lender's balance sheets.

"Five years ago banks would just wait and hope the assets would recover, but now they are being pushed by the ECB and asset quality tests," said Alexandra Jung, a partner and co-head of European investments at Oak Hill Advisors, a New York-based debt investor with more than $20bn under management. "As a result, we are seeing a material growth in distressed sales."

Hypo Alpe, which received €4.8bn of state aid since it was nationalised in 2009, will set up a bad bank to wind down or sell €18bn of problem assets that include delinquent property loans in the former-Yugoslavia, and seized loan collateral, such as shopping malls and luxury yachts. Nikola Donig, a spokesman for the bank, said he is optimistic the Le Meridien Lav hotel will be sold this year.

Lenders will offload €300bn of distressed loans through 2018, more than double the approximately €125bn they have sold since 2010, according to PwC.

In Britain, Royal Bank of Scotland set up a £38bn (€46bn) internal unit for toxic assets in November and plans to sell or run down 55pc to 70pc within the next two years. London-based Lloyds Banking Group is also disposing of non-essential assets, raising £257m from selling souring Irish retail mortgages in December and about €1bn for the sale of real estate loans in the previous month.

Switzerland's UBS which sold $500m (€368m) of distressed debt last month, and Commerzbank, are also among lenders offloading bad assets. Germany's second biggest bank, sold 14 chemical tankers to a fund managed by Oaktree Capital Management LP last month, eliminating €280m in bad shipping loans from its books, according to the bank.

Banks are getting from five to 40 cents on the euro for their bad loans, according to PwC. "There are still a lot of distressed loans that will need a similar magnitude of discount to those sold by Lloyds at 25pc of face value for them to work for investors," said Sachin Rupani, London-based principal at Meyer Bergman, which has raised around $500 million from institutions for a fund investing in European retail properties, including those in distress.

The prospect of picking up deeply-discounted assets has drawn bargain hunters from the US where banks acted faster after the financial crisis to cut their balance sheets and offload problem assets. Blackstone Group, the world's largest private-equity firm, Apollo Global Management and KKR are among firms vying for distressed assets in Europe.

"There are fewer distressed debt opportunities remaining in the US, but in Europe we are probably only 25pc through the cycle and the number of assets will only increase," said Rob Harper, head of Europe for Blackstone's global real estate debt unit. (Bloomberg)

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business