'Heartland' bank closer as boards commit

The merged entity intends to play a part in helping Christchurch recover from the earthquake. Photo / Dean Purcell

Marac, Pyne Gould Corporation, CBS Canterbury and Southern Cross Building Society are a step closer to forming a new listed bank but still face a raft of hurdles.

The four companies yesterday said they had formally committed themselves to setting up the bank after signing a binding Merger Implementation Agreement.

In June the parties announced plans for a "heartland" bank but it has taken until now to convince all three boards to support the move.

Establishment board chairman Bruce Irvine said that until now the parties essentially had a heads of agreement.

"Now we have a situation where the three boards have committed to go ahead with it."

They hope to set up a new company by January which would be 71 per cent owned by PGC, with both CBS and SCBS owning 14.5 per cent each.

It would then list on the stock exchange in February and hope to become a registered bank by July.

But the plan still faces a raft of regulatory approvals including that of the Securities Commission, the Treasury and NZX as well as approval from the High Court for its scheme of arrangement.

Shareholders, debenture holders, bond holders and depositors of the three entities will also have to vote on the proposal.

Irvine said he did not anticipate any problems with the approvals.

"We have been in detailed discussions with the Reserve Bank, Treasury, Securities Commission and the NZX. We are confident we will get across the line."

Irvine said the plan to get a banking licence by July next year was an "aspirational date".

"We still consider ourselves to be on target for that."

It was hoped the merged company would get an investment grade rating soon after forming which would help it get a step closer to becoming a bank.

The aim of the business would be to establish a nationwide presence with a particular focus on leveraging existing legacy markets in Canterbury, Auckland, Waikato and Bay of Plenty.

It would focus on lending activity in niche sectors including small-to-medium businesses, rural businesses and New Zealand individuals and families, and aimed to establish a broader shareholder base and capital structure to facilitate growth.

The head office would be in Christchurch and in the short term the merged entity intended to play a part in helping the region recover from this month's earthquake.

The merger provided increased scale, a platform for accelerated growth via a nationwide distribution network and increased market presence and credibility.

It would have a better case for obtaining an investment grade credit rating and banking licence, while an NZX listing would be likely to lead to greater investor interest, greater liquidity and inclusion in the NZX-50 index, yesterday's statement said.

The merged entity would be well capitalised from the beginning, with CBS, Southern Cross and Marac having built up about $300 million of cash and liquid assets to ensure significant liquidity was available to the merged entity.

Negotiations were also being held with banks seeking undrawn standby banking facilities and securitisation facilities, while NZDX retail bond issuance would be contemplated in time.

Meetings of members, shareholders and investors in the four entities would be held in November to pass the necessary resolutions to enable a scheme of arrangement and other implementation processes to be put into effect.

PROPOSED BANK
* 71 per cent owned by Pyne Gould Corporation, which owns Marac Finance.
* 14.5 per cent shareholdings each by CBS Canterbury and Southern Cross Building Society.
* NZX-listed.
* Head office in Christchurch.

- ADDITIONAL REPORTING: NZPA