The Zhitong Finance App learned that in order to seek an attractive return on investment, wealthy Australians are becoming an important source of funding for coal projects. Contrary to this, banks are shying away from coal projects due to environmental, social, and governance concerns.

Income Asset Management Group Ltd. (IAM) is a fund management company targeting the wealthy in Australia. The company is providing private loans to coal and other mining companies with an annual return on investment of around 12% to 13%.

IAM Debt Capital Markets Director Varuna Gunatillake said in an interview: “If credit returns are effective, we can also conduct non-ESG transactions, such as mining, because our investors are eager for good returns.”

Over the past three years, the company has provided more than 0.5 billion Australian dollars (0.335 billion dollars) in loans for coal and commodity related infrastructure projects. This includes part of a $1.1 billion private credit loan recently obtained by Whitehaven Coal Ltd., and Newcastle Coal Infrastructure Group Pty's subprime debt of $0.17 billion at coal terminals in NSW. The company earns a placement fee for every transaction.

For IAM, the rising global demand for private credit coincides with the growing interest of some Australian individual investors in investing in coal and other lucrative resources.

As investment in renewable energy projects has slowed, the country's strong opposition to coal development has abated somewhat. Developers have to contend with rising costs, lengthy approval procedures, and transmission grid capacity limits.

Due to concerns about power shortages, Origin Energy Ltd. recently decided to delay the shutdown of Australia's largest coal-fired power plant by two years, underscoring the difficulties caused by a slower than anticipated transition.

As a result, despite opposition from ESG supporters and the withdrawal of traditional lenders, funding channels for Australian coal-related projects remain healthy. Some major Australian banks, including Commonwealth Bank of Australia and Westpac, have promised to limit or not provide loans to thermal coal mining companies.

People familiar with the matter said that a subsidiary of India's Adani Group recently obtained a 0.5 billion Australian dollar private credit loan from non-bank lenders Farallon Capital Management and King Street Capital Management. Meanwhile, a consortium led by the Indonesian Widjaja family is seeking private credit funds to finance its acquisition of an Australian coal mine from South32 Ltd.

IAM recognises that businesses that commercial lenders and institutional investors have long shied away from — particularly in the mining and mining services sector — have more and more opportunities to reap substantial returns. According to information on its website, IAM manages more than 3 billion Australian dollars in assets, including cash deposits, bonds and fund management.

Gunatillake said, “We can be a bridge between these two opportunities to connect high-net-worth clients to these institutional deals that are not readily available to the wealthy.”

The potential liquidity from high-net-worth individuals in Australia is huge. In a June report, Capgemini estimated that the investable assets of wealthy Australians will exceed $1 trillion by 2023. Overall, the global asset value of high-net-worth individuals is $86.8 trillion.

An untested market

Notably, the $1.7 trillion private credit market is relatively new and largely untested during the credit crisis. Whether individual investors are sufficiently aware of the risk of loans for complex projects remains to be seen.

But Gunatillake said, “These family finance offices and high-net-worth clients are very sophisticated investors. They have their own financial advisors, investment managers, legal experts, and in-house analysts.”

However, Axel Dalman, head of research at the environmental activist organization Market Forces, warned retail investors not to invest in an industry that is shunned by the public debt market.

“Investors need to see bad signs and recognize that coal is a dying market,” he said. “Big banks understand that ESG risk is a financial risk, and private creditors may experience painful lessons to recognize this.”