Ireland's 'bad bank' seeks sovereign funds

Ireland's "bad bank" plans to attract at least €500 million to create a giant fund aimed at sovereign investors betting on a property recovery.

During their boom days, Irish developers snapped up trophy assets such as the Battersea Power Station in London. Finbarr O'Reilly / Reuters

DUBLIN // Ireland's "bad bank" plans to attract at least €500 million (Dh2.38 billion) to create a giant fund aimed at sovereign investors betting on a property recovery.

The bad bank, otherwise known as the National Asset Management Agency (Nama), acquired €74bn in loans from five of the country's largest lenders in 2009 as excessive lending to the property sector threatened to trigger the collapse of the entire Irish banking system.

Now the agency that controls assets worldwide, from terraced houses in the capital to huge developments across the country and others abroad, is pursuing regional investors as it bids to maximise returns to the government and replenish state coffers.

"We are in the process of setting up a qualified investment fund [QIF] we hope to have operational by the year end," said the Nama chief executive, Brendan McDonagh, in an exclusive interview with The National.

The agency is the legacy of years of excessive property lending in Ireland fuelled by record-low interest rates that gave celebrity status to a handful of big developers as they bought up trophy assets from London's Battersea Power Station to the backstreets of Budapest, becoming paper billionaires in the process. But as prices collapsed, the country's banks were left hopelessly exposed to property suddenly worth less than the loans used to buy it.

Some €71bn in loan assets were initially transferred to the agency involving 850 debtors and some 11,000 loans collateralised by 16,000 individual properties.

Some of these assets are likely to be acquired by the new fund, in which Nama intends to co-invest with other institutions. But it would not be confined to residential property assets controlled by the agency and may be split to include offices, shopping centres and hotels. Mr McDonagh declined to say how much Nama planned to invest in the fund.

A QIF is a regulated vehicle that is aimed at institutional investors who must meet minimum subscription requirements.

"The QIF would make its own decisions and Nama debtors would offer assets for sale to it," said Mr McDonagh. "It might decide to buy a Nama hotel or it might decide to buy a non-Nama hotel. The QIF board has to act in the best interest of its investors."

Ireland has become one of the world's leading centres of institutional investment with more than €1 trillion in domiciled funds, according to the Irish Funds Industry Association. It is also the largest centre for the administration of hedge funds.

"We have met with a lot of sovereign wealth funds over the last two years and they would say they see Ireland as a recovery story but that it's a very small market. They're saying they'd like to invest in the Irish market and that they see value there - but they don't want to have the infrastructure to manage those assets," said Mr McDonagh.

"They want to take advantage of double taxation treaties to make it tax transparent."

Sovereign wealth funds are expected to spend as much as US$10 billion (Dh36.73bn) on European property purchases over the next decade, the property research group IEIF, based in Paris, said last week.

While Ireland accounts for about 56 per cent of total assets linked to Nama loans, it generates some 80 per cent of its cash flow from Britain, where Irish investors have been prolific purchasers in the property sector.

The agency has been pursuing several of its largest debtors to prevent them from hiding or transferring assets they would otherwise be forced to sell to pay their debts. Nama says it has already reversed some €160m in transfers from 31 debtors.

Housebuilding in Ireland grew at twice the pace of the rest of Europe in the decade to 2005, with more 550,000 new homes built in a country of just 4 million people.

Many remain empty on so-called "ghost estates" dotted around the country and some are now being demolished after prices tumbled by more than half since their 2007 peak.