Harmoney founder, employees to cash in nearly $24m on share sale and IPO

The trustee company of Harmoney founder Neil Roberts will cash in some of its shares as part of the share market float. Photo / Supplied

Harmoney employees and directors including the trust fund of founder Neil Roberts are set to cash in some of their investment when the online lender lists on the Australian and New Zealand stock exchanges.

Existing shareholders who are employees, directors and some unaffiliated shareholders will get A$22.5 million ($23.9m) of the A$92.5m set to be raised through the initial public offer, a prospectus for the offer released on Friday shows. It is due to list on November 19.

They will sell 6,428,572 shares into SaleCo - a special purpose vehicle set up to facilitate the process - which will then on sell the shares as part of the offer.

Existing shareholders who don't sell shares into SaleCo - including Heartland Group, Trade Me and Kirwood Capital Partners will then have their ownership scaled.

Roberts, who founded Harmoney in 2013 as New Zealand's first peer-to-peer lender, will remain the biggest shareholder through his trustee company but will sell 1,155,000 shares into SaleCo reducing his stake from 27.5 per cent to 24.4 per cent.

After scaling, his stake in Harmoney will drop further to 18.4 per cent.

Harmoney chief executive David Stevens will also sell shares into SaleCo while other existing shareholders who are not individually named will collectively sell 4,352,297 shares.

According to the prospectus the sell down is mainly to allow employee and director shareholders to cover income tax liabilities associated with those shares.

Kirwood Capital Partners - an Australian private equity investor which bought a stake in the business a few years back - Heartland Group and Trade Me will not sell any of their shares but will have their ownership scaled back.

Kirwood will go from owning 12.1 per cent to 8.7 per cent and NZX-listed Heartland Group will reduce its stake from 11.8 per cent to 8.4 per cent.

Trade Me will also drop from 10.6 per cent to 7.6 per cent.

Only 26.2 per cent of the newly listed company will be owned by new shareholders and there will be restrictions on when many of the existing shareholders can further sell their shares.

Of the total shares held after listing 72 per cent will be under escrow. Affiliated shareholders will have to hold on to their shares until the day after the company's full year results are released to the market for its June 2022 financial year likely to be in August 2022.

While unaffiliated shareholders will have to hold on to theirs until the day after the December 2021 half year result are released to the market.

Of the $70m of the proceeds received from new shares issued it will use $61.4m to invest in the business and $8.6m to fund the offer.

According to the prospectus since launching in August 2014 Harmoney has lent over $1.7 billion to more than 46,000 borrowers and has grown its total loan book to $480m.

Chairman David Flacks said the changing nature of the Australia and New Zealand loan market continued to present an attractive opportunity for the business.

"Harmoney's proven track record of originations, scale benefits achieved through its
technology platform, and machine learning credit scorecard provide an advantage for it to emerge as a leader in the personal lending space."

The company has 60 staff across its New Zealand and Australia operations with a head office in Auckland and around half of its staff are in the product and engineering team.

Flacks said the offer was to provide Harmoney with capital to fund growth opportunities
and provide access to capital markets which it expected would better allow it to pursue future growth opportunities to improve its financial flexibility.

The company's prospectus said the total personal lending market in Australia was A$150.1b as of July and since 2015 non-bank had increased their share of the personal lending market from 9.2 per cent in May 2015 to 46.9 per cent in November 2018.

In New Zealand the personal lending market was around A$14.9b and since 2014 non-bank lenders had increased their share of the market from 31 per cent in January 2014 to 35 per cent in July this year.

Its personal loans are largely used for debt consolidation, home renovations, buying vehicles, funding holidays and other life events.

The company typically loaned between $2k and $70k with the pay back period between two and seven years.

It sees opportunities for growth in the Australian market and to expand its product range targeting millennials and motor vehicle borrowers.

The company also believes its future growth profile may be augmented through targetted acquisitions.

Harmoney chief executive David Stevens and his trustee company will own 1.9 per cent of the company once it lists. Photo / Supplied

But the prospectus also includes seven pages of key risks and warns that Harmoney is an early stage company and as such it is a speculative investment.

Its risks include the potential for higher than expected credit losses and if its customers default on loans that have been funded out of its warehouse facilities it could suffer losses on the subordinated funding it provides to those facilities.

"If losses on loans in the Warehouse Facilities are high, then such losses will be borne first by Harmoney from its 'first loss' position as the provider of the most subordinate ranking debt. Harmoney may also be required to repurchase underperforming loans."

If it breaches restrictions and covenants on those facilities it may then be unable to draw on them to undertake new lending.

It also warns of risks from changes to the regulatory environment and the potential for action to be taken against it.

Technology failure and potential for a cyber attack are also warned about. It also carries a specific Covid warning.

"The full impact of the Covid-19 pandemic is inherently uncertain and there is a risk that the economic and financial markets and business conditions could further weaken. This could result in borrower default on existing loans.

"There is a risk that worsening economic conditions driven by Covid-19 could impact on the demand for Harmoney's products. This could impact Harmoney's future financial performance and the price or value of the shares."

No dividends are expected to be paid in the near term following the company's listing on the ASX and foreign exempt listing on the NZX.