Top Sydney builder’s US$2.3 billion debt woes hit private credit

[SYDNEY] Bathla Group, a major property developer in Sydney, is leaving private credit investors exposed after falling into insolvency earlier this week in the latest blow to Australia’s troubled housing market. 

The company is looking to raise fresh capital from lenders, including existing creditors, according to a person familiar with the matter who asked not to be identified discussing internal plans.

Bathla owes lenders about A$3.3 billion (US$2.3 billion) in debt, people familiar with the situation said.

Teneo, which is overseeing Bathla’s restructuring, referred to a statement from earlier this week which said that its immediate priority is to keep the company operating so it can deliver on projects.

The developer is in the process of building thousands of cheap apartments in the Sydney suburbs.

Bathla’s distress heightens concerns across Australia’s private lending market, which is heavily skewed toward property developers grappling with a housing downturn.

Tax changes for real estate investors, combined with elevated interest rates, have weakened home prices while persistent inflation has pushed up building costs. 

“More and more lending in construction is going to private credit and the buoyant property market can paper over a lot of cracks,” said Ed Brooke, partner and senior investment adviser at wealth manager Escala Partners. “We are seeing a steady rise in construction costs and timelines, and a lot of the losses haven’t been crystallised yet due to the delays.”

About 40 private credit firms in Australia and overseas have helped fund Bathla, according to another person familiar with the matter. PAG, CVS Lane Capital Partners and Centuria Bass are among the company’s biggest lenders, with more than A$1 billion offered to the builder, the person added, though their actual exposures may be lower. 

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PAG alone has extended more than A$300 million in debt, people familiar said. Other lenders include Ray White Capital, La Trobe Financial, MaxCap, Wingate and Balmain, the people added.

PAG, Ray White and Wingate, owned by CapitaLand Investment, declined to comment. La Trobe referred to an earlier statement expressing support for Bathla and assuring investors that it would not freeze redemptions. Centuria said previously that it didn’t expect Bathla’s issues to have a material impact. The other firms did not immediately respond to questions. 

The first creditors meeting will be held virtually on Sep 4 at 11 am Sydney time. BLOOMBERG