To help support Australian jobs the Rudd Government will establish a $4 billion Australian Business Investment Partnership.
This $4 billion Partnership is a temporary contingency measure to provide liquidity support to viable major commercial property projects in Australia.
The Partnership will support the commercial property assets of viable Australian businesses which, without financing, would be forced to retrench thousands of employees.
Commercial property projects that could be supported by this initiative include shopping centres, office towers and factories under construction, as well as existing properties of that nature.
The commercial property sector employs about 150,000 people in Australia.
Many of the 150,000 workers employed in the commercial property sector are tradespeople, such as plumbers, electricians and carpenters.
Without action, a combination of weak demand and tight credit conditions could see up to 50,000 people in this sector lose their jobs, according to Treasury, with flow-on effects to jobs in other parts of the economy.
Small and medium size businesses which service the commercial property sector could also be devastated by weak demand and tight credit conditions in the sector.
The Government will not sit idly by and watch these jobs and small and medium size businesses be wiped out by fluctuations in global credit markets.
It will not allow the major banks to pass on any underperforming assets to the Australian Government. Safeguards will ensure the banks continue to finance the projects to be supported, and that projects will only be considered where a member of a syndicate has actually decided to exit.
Foreign banks in Australia
Foreign banks play an important role in the Australian financial system, but the global financial crisis means that some foreign banks may consider withdrawing their funding from good Australian businesses that require funding to invest in growth and jobs.
The Australian Business Investment Partnership
The Australian Business Investment Partnership will support only high quality Australian assets suffering as a result of global weakness in capital markets.
The action the Government is undertaking does not in any way reflect on the health of the Australian banking system. The banking sector remains well capitalised and Australia has withstood the impact of the global crisis better than many of its international counterparts.
However Australia is not immune from the global crisis and the actions being announced today will help shore up our system against ongoing uncertainty. Disruption in the commercial property sector credit market could have a devastating impact on Australian jobs, which is why the Government is determined to act.
The Government and the major banks have committed capital to this fund in equal partnership and will only offer loans by unanimous agreement between all parties. The Partnership will provide financing on fully commercial terms for commercial property where the underlying assets, and the income streams from those assets, are commercially sound.
This Partnership will be initially capitalised at $4 billion, with the Government contribution of $2 billion matched by an equal contribution by Australia's four major banks. The initial $4 billion capitalisation could be extended via the issuance of government guaranteed debt to create up to $30 billion of loanable capital.
The Partnership will be limited to the re-financing of existing Australian commercial property syndicated loans on commercial terms when the withdrawal of funding by a participant of the syndicate threatens the refinancing of the loan.
The Partnership will focus on completed commercial property investments and partly completed development projects with secured pre-commitments (for example, retail shopping centres, commercial office and industrial property). It will be structured to allow sufficient flexibility to provide financing in other areas of commercial lending, should the need arise and the Government and four major banks jointly agree.
Completed commercial property projects would be included in this partnership to ensure that systemic instability in the commercial property sector does not undermine investor confidence.
The Government and the major banks will continue discussions over the coming weeks to finalise arrangements for the implementation of the Partnership, with a view to having it operational by March 2009.
CANBERRA
24 JANUARY 2009
ADDITIONAL BACKGROUND INFORMATION
The Australian Business Investment Partnership (Partnership) is a special purpose vehicle that will provide liquidity support for viable commercial property projects where traditional financiers have withdrawn from debt financing arrangements as a result of the global financial crisis.
Funding
- The Partnership will initially be funded by the Government and the four major banks. The Government will contribute $2 billion, and the four major banks will finance a total of $2 billion, providing initial financing of $4 billion. The financing provided by the major banks will not be government-guaranteed.
- If additional financing is required beyond the initial $4 billion, the Partnership will be able to issue debt in order to raise additional funding.
- Debt will only be issued once all initial contributions from the Government and the four major banks have been provided.
- Debt issued by the special purpose vehicle will be government guaranteed, and attract an appropriate fee, to be included in the pricing of the paper.
Governance
- The Government will chair the board of the Partnership, which will also have equal representation from each of the four major banks.
- All decisions of the Partnership board, including decisions on its loan portfolio, will need to be unanimous.
Mandate
In the first instance, the Partnership will be limited to the re-financing of existing Australian commercial property syndicated loans on fully commercial terms where:
- a participant of the syndicate has indicated that they will be withdrawing from the arrangements; and
- one of the four major banks is an existing participant in the syndicated loan before the Partnership and maintains at least their existing level of financing.
- The Partnership will only provide funding for commercial property where the underlying assets, and the income streams from those assets, are commercially sound.
- The Partnership will focus on completed commercial property investments and partly completed development projects with secured pre-commitments (for example, retail shopping centres, commercial office and industrial property).
- All profits from the financing operations of the Partnership will be shared proportionately, commensurate with the initial contributions.
- Specific risk and credit criteria will be developed by the Partnership board, however, it is anticipated that the criteria will be broadly consistent with those adopted by the four major banks and the credit rating agencies.
- The Partnership will be structured to allow sufficient flexibility to provide financing in other areas of commercial lending, should the need arise and the Government and four major banks jointly agree.
- The possible participation of other domestic banks will be explored as part of the implementation phase.
Sunset clause
The Partnership will operate for two years from the date of establishment.