Sydney: Australian unlisted property companies, facing a funding gap as banks cut back on loans, may turn to alternative investors such as hedge funds as they seek to repay maturing debt, according to Nomura Holdings Inc.

Lenders including Westpac Banking Corp., the nation's second-biggest, reduced commercial mortgages amid the worst global recession since the Second World War.

Leda Holdings, a privately-held Australian real estate developer, hasn't been able to obtain loans from banks to repay A$300 million (Dh992 million) of commercial mortgage-backed bonds due next week, it said on February 16.

"Property companies with high leverage ratios may need to seek alternative sources of funds where bank lending limits don't cover full refinancing needs," Ben Byrne, credit analyst at Nomura's Australia unit in Sydney, said.

"Many will have to contemplate mezzanine loans to fill the gap."

Property firms including Westfield Group and Stockland, ravaged by losses and writedowns after real estate prices in the US collapsed, led A$120 billion of equity sales to repair balance sheets.

Refinancing needs

Unlisted property firms, which can't tap the stock market, face greater refinancing challenges as banks demand lower debt levels in the wake of the financial crisis.

"Lending conditions for the commercial property sector remain very tight," the Reserve Bank of Australia said in a February 4 monetary policy statement.

Commercial property lending makes up less than 10 per cent of Westpac's gross loans, down from 13 per cent a year ago, the Sydney-based bank said on February 16 when announcing its quarterly profit.

Burden grows

Real-estate developers and companies in Australia, China, and Indonesia will provide the most opportunities for Asia-Pacific distressed debt investors as their refinancing burden grows, according to an industry survey in December.

Some 68 per cent of respondents said debt refinancing will be the most likely source of distressed products next year, according to the poll published by Debtwire.

Investment bank SC Lowy Financial Services and private-equity fund Oaktree Capital Management LLC have expressed interest in buying commercial property assets in Australia.