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Oz govt and banks announce temporary fund to bail out commercial property sector

Prime Minister Kevin Rudd said the action was necessary to support the commercial property sector and safeguard thousands of jobs.

He said the A$4 billion (US$2.6 billion) fund in partnership with the banks is a temporary measure to help investors refinance foreign bank loans they are unable to roll over.

Rudd has already warned that foreign banks might be unwilling to lend into smaller markets like Australia, raising the risk that companies will struggle.

'This partnership is a temporary contingency measure to provide liquidity support to viable major commercial property projects in Australia,' Rudd said in a joint statement with Treasurer Wayne Swan.

'The partnership will support the commercial property assets of viable Australian businesses which, without financing, would be forced to retrench thousands of employees.'

Rudd said that without action, a third of jobs in the commercial property sector, which employs about 150,000 people, were at risk due to weak demand and the tight availability of credit.

The fund, due to be up and running by March, will also be able to lend up to another A$30 billion for commercial property projects, if required, by government guaranteed debt.

Although foreign banks have not withdrawn lending in Australia, the government fears a potential withdrawal of cash-strapped foreign banks from the Australian market would spark a credit shortfall and send the economy into a tailspin.

Foreign banks represent more than half of the A$285 billion in syndicated loans issued to Australian businesses since 2006. Of the rest, A$75 billion ($49 billion) falls due over the next two years, but it is unclear how much of that falls due to foreign banks.

The fund will focus on completed and partly-completed shopping centres, office buildings and industrial property projects which have secured pre-commitments.

In order to minimise risk to taxpayers, the government said the fund would not lend money for new projects and would only support strong businesses which would have difficulty refinancing loans if their foreign lenders pulled out.

Loans would also only be offered to companies on commercial terms, where there was a unanimous agreement between the government and all four banks that the underlying property assets and income streams were sound.

Although banks in the Asia-Pacific region are not hobbled by the toxic assets that have paralysed their Western counterparts, they are cutting exposure to falling property markets.