PGC to provide for $65m in property losses

Pyne Gould Corp (PGC), which owns Marac Finance, has announced a massive shakeup of its operations and assets that will see Marac pull out of property lending and apply for a banking licence.

PGC is to take a full year one-off charge expected to be about $60-$65 million after tax to reflect impairments on property loans by its Marac division.

The move announced today, along with an agreement to buy New Zealand-based asset management firm Equity Partners Asset Management (EPAM) for $18m, is part of PGC's strategy to apply to become a bank.

PGC said that as part of the bank strategy, Marac intended to cease lending on development property.

Marac had retreated from that market and would continue the withdrawal by divesting its remaining impaired or likely to be impaired property loans, expected to involve about $160m, to PGC at face value, PGC said.

Accordingly, Marac's balance sheet would not be affected by any impairment on those loans.

As PGC paid cash to Marac for the loans over time, Marac would invest that cash in government and bank securities to underpin liquidity.

It was intended a real estate credit fund being developed by EPAM, called Torchlight Credit Fund, would acquire the loans from PGC together with other property credit assets.

To allow Torchlight to acquire the loans at fair market value, PGC w ould take a one-off charge to its results for the year to June to reflect the impairments, expected to be about $60-$65m after tax.

Final details would be released when PGC reported its annual results in late August.

PGC said the EPAM acquisition signalled a new strategic focus on banking and asset management.

EPAM was controlled by PGC director George Kerr, who was associated with Pyne Family Holdings, PGC's largest shareholder. EPAM, which focused on infrastructure and credit, would become part of a new PGC group company, Perpetual Asset Management, to be chaired by Mr Kerr.

The company would manage and own cornerstone shareholdings in major funds, initially focused on infrastructure and real estate credit assets and, in time, other asset classes including agri-business, PGC said.

Marac intended to apply for a banking licence this year, and if successful to grow to become a mid-sized New Zealand bank catering to the needs of individuals and small and medium enterprises.

PGC chairman Sam Maling said that while PGC had not been immune to the impacts of the credit crisis, its conservative approach to lending and discipline of having no related party lending had ensured the losses suffered were comfortably within the group's capital capability.

Mr Kerr said property lending would continue to be a core part of the New Zealand financial system despite a "savage" realignment in values.

Such assets needed patient capital and highly specialised expertise to realise full value.

PGC said that once its board had determined the level of capital needed by Marac to support a banking licence and the medium term capital requirements of the asset management business, a capital expansion programme would be carried out.

Current shareholders would have the opportunity to take part.

- NZPA