KEY POINTS:
Property financier Strategic Finance says potential buyers with strong capital backing have started talks about buying New Zealand's fourth largest finance company.
The company is also going through an intensive review of its loan book as it approaches the end of the financial year.
More news on the talks about a change of ownership are likely within 3 to 4 weeks, Strategic Chief Executive Kerry Finnigan told interest.co.nz.
Strategic Finance is owned by listed Australian investment fund Allco HIT and owes over NZ$500 million to over 20,000 investors. It was founded in 1999 and run by former All Black captain Jock Hobbs before the business was sold to Allco. Hobbs, who is also the chairman of the New Zealand Rugby Football Union, remains as an executive director of Strategic.
"A number of people are looking at the business," Finnigan said, adding that one option was some sort of management buyout with a well funded backer. "Whoever wants to buy us would need to have access to funding," he said.
Strategic Finance's ownership has been up in the air since Allco HIT's controlling shareholder, the investment bank and funds manager Allco Finance Group, announced a major strategic review earlier this year amid discussions about its own bank funding lines in the wake of the global credit crunch.
Finnigan acknowledged that the uncertainty about the strength of Allco had affected confidence in Strategic Finance. "It does affect us. The indications are that confidence is impacted by whatever happens at the parent," Finnigan said, adding that Strategic needed a strong shareholder with the capacity to contribute capital backing when necessary.
Allco bought 50 per cent of Strategic in May 2006 and bought the following 50 per cent last year for NZ$225 million in a deal that saw ownership move to Allco HIT, the listed investment trust. Allco is conducting a strategic review of all its assets including Allco HIT, and has flagged it plans to sell financial services businesses, although Allco HIT has not formally put Strategic up for sale, Finnigan said.
"We are aware of a number of parties who have expressed an interest in acquiring Strategic including the management," Finnigan said. "Discussions are at the very early stages, however we would expect to provide some clarity on this in the next 3 -4 weeks," he said.
Property financier Strategic Finance has used up all its NZ$75 million of bank funding from HBOS (Halifax Bank of Scotland), but remains confident that it can repay debentures as they mature and make all its interest payments. It says its loans are due for repayment at a much faster rate than the repayment of maturing debentures.
Finnigan said a total of NZ$280 million worth of loans were due for repayments over July, August and September, while maturing debentures were worth NZ$15-20 million a month.
"Not all of that will repay as and when committed, however, I don't have to get a lot of that money back to stay ahead of the eight ball," Finnigan said. He acknowledged, however, that some property developers were struggling to repay development loans because of the extremely tough property market and problems with settlement.
"There are delays caused by events occurring outside everyone's control such as titles being issued," Finnigan said. "Others are directly associated with borrowers having difficulty refinancing," he said. "Settlement of pre-sales in some instances has also been slow as purchasers are also finding it difficult to source funds."
Finnigan said Strategic had virtually stopped making new loans, unless the justifications for the loans were very strong. Strategic Finance had NZ$7.99 million worth loans out of a total loan book of NZ$574 million that were past their due date on May 31.
Finnigan said a mix of property development and residential investment loans were delinquent. Its 6 biggest loans make up about 30 per cent or NZ$172 million of the loan book. Finnigan denied that Strategic was either in discussions with Fortress Credit Corp or was considering a moratorium on debt and interest payments.
He declined to detail Strategic's debenture reinvestment rate or its level of new investments, saying this statistic on its own was misleading and was not the sole measure of liquidity. It did not reflect the more complex nature of the business, including other funding sources and the ability to collect on maturing loans, he said.
The last time Strategic reported on its debenture reinvestment rate was in March, when it stood around 50 per cent.. That may have fallen since the collapse of Lombard Finance and the moratorium proposal from Dominion Finance Holdings last week.
Strategic's biggest investments is a NZ$70 million to the developer of the NZ$300 million Hilton Denarau hotel and resort project in Fiji, which is partially completed and beginning the sales process for the third and final stage of resort villas.
Strategic will not be repaid all its money until that third stage is completed and there is uncertainty about when that might be because initial pre-sales have been slow and design and feasibility for the third stage have not yet started.
This loan is the biggest on Strategic's book and represented at least 60 per cent of the shareholder equity in Strategic Finance as at December 31. It is a capitalizing loan where interest is not paid until the loan is repaid.
The debt structure for the development is reset at each stage of the development with principal and interest paid as each stage is completed. Strategic's loan ranks behind another loan to the project by HBOS (Halifax Bank of Scotland International).
- INTEREST.CO.NZ
