ANZ's sale of UDC a sad day for SMEs - consultant

Ownership change sees S&P downgrade NZ's largest finance company. Photo / Richard Robinson

ANZ's sale of finance company UDC to Chinese conglomerate HNA is a "sad day" for New Zealand's small to medium sized enterprises (SMEs) because it is likely to result in higher interest rate costs, according to a finance sector expert.

Simon Thompson, an Auckland-based finance consultant with 30 years' experience in the sector, said the decision to sell UDC - New Zealand's biggest finance company - was a backward step.

Soon after the $660 million transaction was announced, ratings agency Standard & Poor's downgraded UDC's rating from A minus to BBB with a negative CreditWatch, which Thompson said would mean higher interest-rate costs for UDC customers.

"Secondly HNA have no prior exposure to New Zealand markets and no direct finance experience so there must be concerns about their direction," Thompson told the Herald.

"Their main interests are in airlines and they may be more focused on big ticket lending rather than smaller high volume SME loans," he said.

Thompson is an international finance consultant who has worked with the Asian Development Bank, specialising in SME financing.

The S&P report said the ownership change "could affect UDC's risk appetite and underwriting practices".

Auckland-based finance consultant Simon Thompson. Photo / Supplied

On the positive side, Chinese financial institutions are among the world leaders in financial technology, so there was the possibility this may extend to improving UDC's technology and services, Thompson said.

David Tripe, associate professor at Massey University's school of economics and finance said that while S&P's rating action could result an increase in UDC's funding costs by around 30 to 50 basis points, it was debatable as to whether that would flow through to higher costs for UDC's borrowers.

"The margins on lending are pretty good, so it does not necessarily translate through into increased lending rates," Tripe said.

Tripe agreed with ANZ's rationale for selling UDC as the finance company business required a different mindset from banking.

"Banks and finance companies don't necessarily sit that well together, so that's probably been the driving force behind ANZ's sale of both Esanda (Australia) and UDC," he said.

"It was a nice, profitable business but it was a bit peripheral to their mainstream business," Tripe said.

UDC's chief executive Wayne Percival said ANZ had made it clear for some time now that it wanted to simplify its business and focus on its core banking operations and that the sale of UDC Finance was consistent with that.

"The sale to HNA Group ensures ongoing competition in the asset finance market which can only be good for customers," Percival said. "While an existing local player would inevitably look to make efficiencies if it acquired UDC, HNA intends to operate UDC as a going concern," he said.

HNA intends to maintain existing lending and is offering jobs to UDC staff. "We are confident that this is a good outcome for all customers and staff," Percival said.

The deal is subject to various approvals and is expected to be completed late in the second half of the year, and will deliver a net gain to ANZ of A$100m.

The sale price is $235m above UDC's net assets, or a price-to-book ratio of 1.6 times.
S&P, in its report said that subsequent to the conclusion of the sale, UDC may face challenges maintaining its franchise in both the debenture funding
markets--if it is to remain funded by debentures--and among some of its borrowers.

"We also consider a change in ownership could affect UDC's risk appetite and underwriting practices, which we currently regard as being more conservative than that typically observed amongst New Zealand finance companies," it said.

HNA Group has evolved from a regional airline based on Hainan Island into a global company with $124 billion of assets and $39b in annual revenues and nearly 200,000 employees across North America, Europe and Asia.

The financial arm of HNA operates a diverse set of businesses in equipment leasing, insurance, and credit services, including China's largest non-bank leasing company, one of the world's largest aviation finance businesses, one of the world's largest container leasing businesses, and Europe's largest trailer leasing business.