US credit crisis leads to sell-off at €6bn Irish fund

Another Dublin-based investment fund has run into trouble as the US subprime crisis continued to affect broader markets.

Cheyne Finance, the €6 billion Dublin-listed structured investment vehicle (SIV) of British hedge fund Cheyne Capital Management, said it was looking to restructure its operations after being forced to start selling assets to meet debts. The announcement to the Irish Stock Exchange came as global stock markets recovered some poise after Tuesday's sharp losses.

Investors moved on beaten-down shares amid renewed speculation the US Federal Reserve would cut interest rates to ease tight credit conditions. US markets were trading more than 1 per cent firmer in afternoon trade yesterday.

The Irish market ended almost 1 per cent higher, recouping some of the 2.6 per cent it shed on Tuesday, while the main European markets ended around half a percentage point stronger.

The statement from Cheyne Finance came hours after Standard & Poor's slashed its ratings by six notches from AAA to A-. Just two weeks ago, the agency said ratings on SIVs - including the Cheyne vehicles - were weathering the turmoil caused by defaults on US subprime mortgage lending.

"Market conditions remain difficult, with asset prices continuing to be marked lower," Cheyne Finance said in a statement. "We have been actively selling assets and reducing the size of the portfolio and have raised sufficient cash to cover projected liabilities for the next few months," Cheyne said, adding it had enough to cover payouts until November.

"We continue to try to work on a re-capitalisation or restructuring and to extend debt maturities." Cheyne said it would start a "gradual, orderly sale" of its investments and would estimate total proceeds tomorrow.

The announcement comes just a day after another Dublin-based fund - IKB Deutsche Industriebank's Rhinebridge - said it was taking steps to raise cash.

Rhinebridge said it had sold $176 million (€129 million) in assets "to manage our overall liquidity position. Further liquidity support from IKB and its owners cannot be expected at this stage. Asset prices continue to weaken on the fact that there are mainly sellers, in many cases forced sellers," Rhinebridge said.

Troubles at another Dublin fund - Ormond Quay Ltd - were behind the near collapse of German state bank Sachsen LB, which prompted its ultimate owner, the German state of Saxony, to agree an emergency sale at the weekend to rival Landesbank LBBW.

Traders and analysts said there were concerns more SIVs could come under pressure, leading to further sales of assets. British bank Barclays, hit by worries over its exposure to highly leveraged debt vehicles, holds collateral that would limit its losses to £75 million (€110 million), a source familiar with the matter said.

- (Additional reporting: Reuters, Financial Times service)