Banks at Risk of Bad-Debt Blowout as Aussie Steelmaker Collapses
"Commonwealth Bank of Australia and its competitors are staring at a potential blowout in bad-debt expenses as they try to claw back a combined A$1 billion ($753 million) of loans to steel and iron ore supplier Arrium Ltd., underscoring the looming threat to lenders from the commodities bust.
The banks may recoup less than 50 cents on the dollar they lent to the Sydney-based company, which handed control to an administrator Thursday after lenders rejected its $927 million recapitalization plan with Blackstone Group LP’s GSO Capital Partners.
The turn in the commodities cycle is impacting companies from miners to oil explorers and causing trepidation for banks that have lent them billions of dollars across the world. Bad-debt provisions at Australia’s largest lenders are set to rise to their highest in eight years by 2018, as the chances of defaults in the mining, agricultural and dairy sectors increase, according to a survey by Bloomberg last month.
“It’s a negative for the four big banks given they are unsecured creditors,” said Omkar Joshi, a Sydney-based investment analyst at Watermark Funds Management, which manages A$1 billion. “It is also negative because it looks like the banks wouldn’t even get the 50-55 cents on the dollar that was expected under the GSO proposal.”
Commonwealth Bank, Westpac Banking Corp. and National Australia Bank Ltd. each had lent A$250 million to Arrium, according to people familiar with their exposure to the stricken steelmaker. Australia & New Zealand Banking Group Ltd., which is Arrium’s transaction bank, has a facility of more than A$200 million, one of the people said.
Spokesmen at the four lenders declined to comment."
http://www.bloomberg.com/news/articles/2016-04-08/bank-dangers-exposed-as-a-1-billion-debt-at-risk-in-australia
