Markets across Asia tumbled on Monday on new fears over the state of the global financial system as Wall Street giant Lehman Brothers Holdings Inc. said it would file for bankruptcy.
Taiwan was the worst hit among the major markets, closing down 4.09%, while Singapore shed 3.27%. However, in Australia, dealers fought back slightly from earlier losses to end the day off 1.8%. But the worst hit of Asia’s bourses was Jakarta, which was 4.7% off, while Manila shed 4.2%. Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.
The financial sector suffered most as investment bank Lehman Brothers, hit hard by the US subprime real estate meltdown, staged a last-ditch effort to find a buyer. When it failed, it announced that it would file for bankruptcy “in order to protect its assets and maximize value”.
The US Federal Reserve and major global banks opened up fresh credit as markets braced for its collapse, with many fearing a domino effect that would ravage the rest of the global financial system.
In the fallout, Bank of America Corp. took over Merrill Lynch and Co. in a $50 billion (Rs2.3 trillion) deal, insurance giant American International Group Inc. (AIG) was reported to have sought an emergency loan to head off its own crisis and a group of banks set up a $70 billion global emergency fund. “Obviously, with Lehman looking to file for bankruptcy protection, Bank of America buying Merrill Lynch and AIG under pressure to sell assets, you’ve probably seen more in one day of financial history than we’ve seen since the great crash of 1929,” Marcus Droga, associate director of Macquarie Private Wealth, a division of the Macquarie Group Ltd, told Dow Jones Newswires.
In other markets, Wellington shares slid 1.26%, Bangkok was off 1.83%, Kuala Lumpur lost 1.2% and Mumbai was 3.35% down after opening 5.19% off.
Australia’s benchmark SP/ASX200 index closed down 86.1 points at 4,817.7, led by heavy losses in the financial sector, while the broader All Ordinaries dropped 82.1 points to end the day at 4,875.
Singapore’s blue-chip Straits Times Index skidded 84.12 points to 2,486.55. “The market is terrible. The best is to stay away,” a local house dealer said.
Malaysian share prices ended 1.2% lower, dealers said. The Kuala Lumpur Composite Index shed 12.40 points, to close at 1,031.63.
Indonesian shares slumped 4.7% and the Jakarta Composite Index tumbled 84.81 points to its lowest closing level since March 2007 to 1,719.25. PT Bank Mandiri (Persero) Tbk fell 8.2%.
The Philippine composite index fell 109.96 points to 2,536.16, its lowest level in six weeks. In New Zealand, share prices fell by 1.26% and the country’s benchmark NZX-50 index fell 41.78 points to 3,319.90.
Tuesday, September 16, 2008
Lehman fall may deepen Indian realtors' credit woes
Lehman Brothers’ bankruptcy is likely to cost Indian real estate dear. It may impact the financial major’s existing investments worth $500 million in realty firms, including DLF and Unitech, besides drying up another $500-million worth of potential investment which was expected to flow into Unitech’s Mumbai projects.
The news of Lehman’s collapse brought the BSE realty index down by 7.65% on Monday, while the benchmark Sensex declined 3.35%. Both DLF and Unitech fell 7.5%.
Lehman’s fall signals a deepening of credit crisis for Indian developers, who have lately been battling falling sales, rising cost of construction and tightening credit. It is expected that the US-based firm is likely to go for a fire sale of its assets.
The financial services major was very bullish on India and was among the active investors in Indian real estate. Early this year, it had leased out an office space in Mumbai paying Rs 1 crore per month as rental. This would divert a part of fresh funds seeking to invest in Indian realty.
This is because global fund houses have country-allocations. And as they buyout Lehman’s stake in some of the Indian assets, they will end up diverting some of the fresh funds-in-hand to existing assets rather than investing in new projects.
“Lehman’s departure will impact future cash flows of real estate companies. In a market situation like today’s, it will be all the more difficult for the firms to raise funds,” says Karvy Stock Broking vice-president Ambareesh Baliga.
Lehman invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.
Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.
Wherever the developers had received fund, they are safe. But where the funds are yet to come, the developers could get stuck. Some analysts say a distress sale by Lehman will impact the valuation of existing projects.
DLF CFO Ramesh Sanka had earlier told ET that Lehman’s sale of investments in DAL would not impact DAL’s valuation. Unitech MD Sanjay Chandra said that his company had already received funds. So, the company won’t get impacted by Lehman’s bankruptcy.
Some industry executives say that FDI norms of a three-year lock-in period may prevent Lehman from making an immediate sale. But analysts argue that the lock-in period in case of bankruptcy may not hold.
The news of Lehman’s collapse brought the BSE realty index down by 7.65% on Monday, while the benchmark Sensex declined 3.35%. Both DLF and Unitech fell 7.5%.
Lehman’s fall signals a deepening of credit crisis for Indian developers, who have lately been battling falling sales, rising cost of construction and tightening credit. It is expected that the US-based firm is likely to go for a fire sale of its assets.
The financial services major was very bullish on India and was among the active investors in Indian real estate. Early this year, it had leased out an office space in Mumbai paying Rs 1 crore per month as rental. This would divert a part of fresh funds seeking to invest in Indian realty.
This is because global fund houses have country-allocations. And as they buyout Lehman’s stake in some of the Indian assets, they will end up diverting some of the fresh funds-in-hand to existing assets rather than investing in new projects.
“Lehman’s departure will impact future cash flows of real estate companies. In a market situation like today’s, it will be all the more difficult for the firms to raise funds,” says Karvy Stock Broking vice-president Ambareesh Baliga.
Lehman invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.
Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.
Wherever the developers had received fund, they are safe. But where the funds are yet to come, the developers could get stuck. Some analysts say a distress sale by Lehman will impact the valuation of existing projects.
DLF CFO Ramesh Sanka had earlier told ET that Lehman’s sale of investments in DAL would not impact DAL’s valuation. Unitech MD Sanjay Chandra said that his company had already received funds. So, the company won’t get impacted by Lehman’s bankruptcy.
Some industry executives say that FDI norms of a three-year lock-in period may prevent Lehman from making an immediate sale. But analysts argue that the lock-in period in case of bankruptcy may not hold.
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