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Aussie home loan group fails to refinance $8.2b debt

MELBOURNE – THE deepening crisis in credit markets threatens to ensnare more mortgage lenders.

Australian home loan group Rams said yesterday that it had failed to refinance A$6.17 billion (S$8.2 billion) in debt as fallout from a mortgage credit crunch in the United States starved the market of liquidity.

Shares of Rams, which now has 180 days to refinance the loans, tumbled 59 per cent on the Australian Stock Exchange, closing at 87 Australian cents compared with A$2.50 paid by investors at its listing just last month.

Rams has lost two-thirds of its market value this week.

Its woes helped trigger the biggest decline in Asian shares in a year as investors fled high-risk assets.

Global markets were already jittery after an analyst report overnight that the largest mortgage lender in the United States, Countrywide Financial Corp, could face bankruptcy should creditors force it to sell assets at depressed prices.

‘If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,’ Merrill Lynch & Co analyst Kenneth Bruce wrote in a research note.

The report sent Countrywide shares sinking 13 per cent in US trading on Wednesday, their biggest one-day decline since the 1987 stock market crash. Countrywide’s shares have lost almost half their value this year.

The US stock market also buckled, with the Standard & Poor’s 500 Index falling 1.4 per cent, erasing all of this year’s gains.

In related news, an affiliate of leveraged buyout firm Kohlberg Kravis Roberts & Co said on Wednesday it will lose about US$40 million (S$60.2 million) from selling US$5.1 billion in residential mortgages and warned that an additional US$200 million hit could be coming.

Shares of KKR Financial Holdings plunged 31 per cent and one analyst said that a credit downgrade could force the company to liquidate in bankruptcy.

The problems added to the continued mortgage and credit turmoil that has cast doubt on whether Kohlberg Kravis would take part of its partnership public.


Source: The Straits Times 17 Aug 07

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