Industry Research: Corporate

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GCR places South African commercial property on Negative Trend as fragile economy continues to drive high asset, liquidity and funding risk
  • Industry Research: Corporate
  • Year : Aug 2020
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Summary

The Negative Trend reflects GCR’s view that commercial real estate will face persistent funding and liquidity risks over the outlook period, with increased potential of material fair value write-downs and earnings underperformance further reducing financial flexibility. The domestic property market was highly geared going into the COVID crisis, with many mid to large-scale listed funds’ LTVs trending towards 40%-50%+, and unlisted/offshore portfolios held by South African investors typically carrying LTV levels as high as 65%-100%.

Additional Information

Financial institutions, which overwhelmingly underpin real estate financing, have mostly supported proactive treasury risk management in the wake of COVID-19, including interim covenant relief, early refinancing, and added facility headroom to allow for interest capitalisation if required. Nonetheless, the financial sector is re-rating its property exposures for higher operating and funding risk assumptions, amidst rising currency/synthetic debt exposures, as well as covenant and other significant liquidity constraints.

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