Volksbank has assembled a multi-regional commercial property-dominant loan portfolio, dubbed Project Donau, in one of the first major loan pools since the global financial crisis which is backed by less mature Eastern European real estate and legacy corporate lending.
The Austrain bank has enlisted Oliver Wyman, the global consultancy firm, to sell Project Donau, which has a nominal balance of €460m and is split across three separate tranches.
Project Donau, named after the Danube River which runs throughout Eastern Europe, is a highly challenging loan portfolio and is expected to trade at single-digit cents in the euro.
Some of the complexities with working out Project Donau, for the winner or winners, will vary between the different jurisdictions.
Dominant markets in Project Donau, such as Romania, Bulgaria and Croatia, are highly imperfect, inefficient and undeveloped which lack a modern legal framework for creditors to enforce their rights over defaulted loans.
The interpretation of creditor laws, through local Court systems, can be inconsistent and unpredictable, emphasising the need for local market expertise for partners.
Project Donau’s three tranches are as follows:
• a €160m commercial real estate NPL segment in 18 exposures; • a €160m tranche of enforced commercial real estate loans in 15 exposures; • a €140m corporate NPL segment in 48 exposures, including loans to property-owning companies.
Within the first tranche – the €160m CRE NPL – is the largest single-country finished assets: a €51m nominal balance of loans secured by office and retail assets. The vast majority of the remaining secured real estate are land plats, across Poland, Hungary and Croatia.
The Croatian land is earmarked for retail and logistics properties.
Project Donau’s second tranche – the €160m CRE loan enforced exposures – is comprised Romanian land plots earmarked for majority retail assets, then mixed use. There is also an office scheme in Bulgaria, which is in development, and a partially developed residential scheme in Hungary.
By outstanding balance, the underlying real estate and corporate assets are spread across:
• Romania, €127m or 28%. Of which €126m is CRE loans and assets; • Austria, €62m or 14%. All of which is corporate lending exposures in Austria and Germany; • Bulgaria, €57m or 12%. All of which is CRE loans and assets; • Croatia, €48m or 10%. All of which is CRE loans and assets; • Poland, €43m or 9%. Predominantly CRE exposures; • Hungary, €36m or 8% All of which is CRE loans and assets; • Germany, €32m or 7%. All of which is corporate lending exposures; • Around €48m of the remaining €54m nominal balance is spread across corporate lending Slovakia, Luxembourg, Slovenia, Russia, United Arab Emirates and Serbia; • Finally, €6m of Czech Republic exposure is secured by CRE loans and assets.
While bids per tranche will be considered, Volksbank has stated a preference for the entire €460m Project Donau portfolio.
First round bids are due on Monday 14 July.
Volksbank announced in mid-May the disposal and early repayment of a portfolio of €400m real estate loans which contributed to a “significant loss” through a series of small trades.
The Project Donau loan portfolio is understood to be towards the end of the bank’s legacy commercial real estate exposure.
Volksbank and Oliver Wyman declined to comment.