In brief
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Draft legislation was introduced into Federal Parliament on 12 March 2009 to establish the Australian Business Investment Partnership, a partnership between the Commonwealth and Australia’s four major domestic banks.
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ABIP will provide up to $30 billion in funding to viable Australian commercial property ventures that are unable to obtain finance from traditional lenders.
Background
The global financial crisis has significantly reduced the availability of credit in Australia. Owners of Australian commercial property, including listed and unlisted trusts and syndicates, stapled entities and other investors, are finding it very difficult to extend or refinance existing loans.
On 12 March 2009, the Federal Government introduced two bills into parliament relating to the $4 billion partnership with Australia’s four major domestic banks (known as “Ruddbank”) to support lending to commercial property ventures:
Incorporation of ABIP
A public company limited by shares will be incorporated under the Corporations Act, known as “Australian Business Investment Partnership Limited”. The members of ABIP will be the Commonwealth of Australia and the four major domestic banks.
Under the shareholders agreement between the members, the Commonwealth will provide $2 billion to ABIP, and the four banks will provide $500 million each. Of the total funding of $4 billion, $3.996 billion will be undrawn loan facilities and $4 million will be equity for initial working capital.
ABIP’s objects
The objects of ABIP as stated in the Bill have been broadened beyond those originally proposed when the partnership was announced by the Prime Minister on 24 January 2009. Then, the object of the partnership was to be limited to “the re-financing of existing Australian commercial property syndicated loans on commercial terms when the withdrawal of funding by a participant in the syndicate threatens the re-financing of the loan.
Under the Bill, ABIP has two objects:
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to provide refinancing for loans relating to commercial property assets in Australia in situations where finance relating to the assets is not available from commercial providers other than ABIP, and the assets would otherwise be financially viable;
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to provide financing in other areas of commercial lending through financing arrangements of a kind agreed to unanimously by ABIP’s members.
Financing arrangements will have to be entered into within 2 years of the Act commencing, and the term of the financing arrangements may not exceed 3 years or such longer period as is specified in the regulations. (Draft regulations have not yet been issued).
The explanatory memorandum for the Bill states that “property located outside Australia, land banks, speculative development assets and rural property would fall outside the scope of ABIP’s lending criteria”.
Borrowings
ABIP will be permitted to borrow up to $26 billion (in addition to the $4 billion in funding provided by its members). The additional funding will be guaranteed by the Government, and will only be issued once the initial $4 billion has been exhausted.
Consequential Amendment Bill
The Consequential Amendment Bill will exempt ABIP from the requirement to hold an Australian financial services licence, by an amendment to section 911A of the Corporations Act. While the provision of credit does not constitute a financial service, the explanatory memorandum states that it is arguable that activities of ABIP incidental to the provision of credit would constitute providing financial services within the meaning of section 766A of the Corporations Act.
What happens next?
The draft legislation is expected to go to a Senate inquiry.
The DibbsBarker Financial Services team will keep you posted with developments.
The material contained in this publication is no more than general comment. Readers should not act on the basis of the material without taking professional advice relating to their particular circumstances.
