Heartland credit rating put on negative outlook over earnings, property loans
By Paul McBeth
Aug. 12 (BusinessDesk) – Heartland New Zealand Ltd., the lender formed in the merger of Marac Finance with the Canterbury and Southern Cross building societies, has been put on notice by rating agency Standard & Poor’s over its earnings outlook and legacy loans.
The would-be bank’s investment grade BBB- rating, which it needs to secure a banking licence, was put on negative outlook today, with S&P saying it needs o see an “improvement in Heartland’s earnings and in Heartland managing down its exposure to the legacy property development book,” it said in a statement. Management is focusing its efforts on addressing these areas, Heartland said.
“The change in outlook does not imply any deterioration in underlying risk, but rather reflects the rating agency’s desire to see faster improvement in earnings and exit of the legacy property development book,” the company said.
That comes two weeks after the lender said net profit was between $6 million and $8 million in the 12 months ended June 30, and that this will shoot up to between $20 million and $24 million next financial year when it takes on the PGG Wrightson Finance unit.
Heartland will pay for the Wrightson unit by raising $35 million from existing shareholders, via a share purchase plan, in a deal underwritten by Pyne Gould Corp. for $10 million and by Impact Capital Management, a private company representing interests of South Island investors, the Tomlinson family.
PGG Wrightson Ltd. and Pyne Gould will each buy $10 million of shares in Heartland through private placements.
Wrightson is carving out some $96.5 million of loans into a special purpose vehicle to refinance or realise those assets in the short- to medium-term, and will provide a $30 million guarantee on certain loans sold to Heartland. According to Wrightson’s first-half results, impaired and past due loans amounted to $111.6 million.
In June, the New Zealand Shareholders’ Association said the $100 million acquisition undervalued the $491 million loan book.
Heartland’s shares were unchanged at 58 cents, and have dropped 34% this year.