banks losing patience

BANKING syndicates' willingness to keep troubled property companies alive may be evaporating, banking analysts say.

"Patience has run out," banking analyst Brian Johnson said.

"The share prices are telling you that, and people want banks to get on and fess up."

Allco's bankers have already acted, while shopping centre owner Centro Properties Group must refinance three corporate loan facilities worth $4.95 billion by December 15.

Centro won a three-month reprieve from its US and Australian bankers in September.

US bank Wachovia -- one of Centro's financiers -- this week issued global property joint-venture partners Babcock & Brown, and GPT, a "notice of acceleration".

The notice, concerning a $US112 million ($173 million) loan over one of the partner's US portfolios, resulted from it declining to provide additional collateral requested by the bank.

It is understood at least one major Australian bank has toughened its stance against troubled companies.

On the implications of Centro collapsing, Mr Johnson said: "It means all those other property trusts that are in a similar parlous position will probably go as well. Every day that a company is insolvent and trading, the directors are personally liable.

"I can point out listed companies" whose balance sheets "look exactly the same as some of the prominent failures, and yet the banks have rolled over the finance for them".

Among debt-heavy companies are Hedley Leisure and Gaming Group and investment house Babcock & Brown.

Babcock, which manages $12.6billion in real estate assets, yesterday announced it would try to transform into a pure infrastructure group and sell all non-core assets, such as real estate.

That decision comes at a time when global asset values are falling and many companies are trying to offload property assets.

Babcock's interest coverage (used for measuring a company's ability to pay interest on outstanding debt) could breach a debt covenant this year or next, according to investment bank Citi. Unease is building about the future of Babcock, which is in discussions with its banks.

In a separate note to clients, Citi banking analysts said setting aside concerns about single name corporate customers, the industry sector that worried most investors was commercial real estate. For fear of triggering a major fall in market values, it said, banks had been loath to act on their security to realise assets, with the result that prices had remained high.

"However, in our view this position is becoming more difficult to sustain. Major property companies are struggling to realise assets and reduce debt, and the patience of lending syndicates must now be running out," they said. "This would be particularly the case where foreign banks are involved, as they are typically feeling intense pressure to deliver their balance sheets."

Another banking analyst said commercial property was the only area across the entire banking system, "where you can demonstrably see a deterioration in asset quality at the moment".

The analyst said he expected high bad debt charges for banks.

"We're expecting a cycle that has been largely single-name to date, will broaden out into something more systemic in a number of industries, commercial property included," he said.

Commercial property would be "more adversely affected" than other sectors, he said.