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Heartland to buy ‘home equity release’ business for $87m, to raise $20m from shareholders

UPDATEDHeartland New Zealand [NZX: HNZ], which gained a banking licence just over a year ago, has agreed to buy a 'home equity release' mortgage business from buyout firm Quadrant Private Equity for $87 million in cash and shares and plans to raise $20 million of that from shareholders.

Home equity release (HER) products target the elderly, allowing them to draw against the equity in their home. Similar products have been called reverse mortgages and deferred settlement schemes. Typically, the borrower doesn't pay interest and the mortgage is settled when they vacate.

Heartland has signed an agreement with Seniors Money International, majority-owned by Quadrant, to buy its HER businesses in Australia and New Zealand. The sale is conditional and would be settled on April 1.

The acquisition "provides Heartland with the product capability to meet the needs of the 65-plus demographic, which is a growing demographic and is typified by those with the majority of their personal wealth tied up in their primary residential dwelling," the bank said in a statement.

Under the deal, Heartland would acquire Sentinel New Zealand, the nation's biggest HER mortgage provider with about 4,050 loans, and Australian Seniors Finance, which has 20 percent of that market and 4,250 loans. The aggregate value is about $760 million including $30.5 million of HER loans bought by Heartland last December.

The acquisition will be funded with $48.3 million of cash, made up of the capital raising and existing cash on the balance sheet, and by the issue of $38.7 million of shares at 90 cents apiece, it said.

The capital raising is by way of a $15 million placement and $5 million share purchase plan and the company said it has commitments from new and existing investors for the placement, which would be at 88 cents a share. The shares last traded at 90 cents, up 1.1 percent on the day, having been halted for the announcement.

Heartland said HER loans are "an ideal response to demographic and economic realities - an aging population with much of its wealth invested in real estate."

The acquisition is expected to add $8 million to $9 million to profit in the first full year following integration, with profit in 2015 of $42 million to $44 million, including costs associated with the purchase and integration of the businesses.

The company is scheduled to release its first-half results on Feb. 25 and said today it would be a profit of about $16.5 million, putting Heartland on track to meet its full-year forecast of $34 million to $37 million.



EARLIERHeartland New Zealand [NZX: HNZ], whose shares reached a post-listing high this week, was halted from trading pending an announcement to the stock exchange.

The stock jumped to 92 cents on Wednesday, closing at 89 cents yesterday. In the past 12 months the shares have gained 23 percent, compared to the NZX 50 Index rise of 15 percent in the same period.

The bank formed from the merger of Canterbury and Southern Cross building societies and Marac Finance is due to report earnings on Feb. 25. In guidance given at the end of first quarter the lender said it was on track to meet half-year targets.


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Comments and questions

Looks to be a good purchase - another niche banking area for them to specialise in.

Taking into account that the ratings agencies have all implied that they are seriously looking at the second tier banks with a view to down grading this could be a risky play by Heartland - ie it could put the whole bank at risk if the reverse mortgage book's life is extended beyond the actuarial calculations and client's lives.

We all know that we are all living longer - and Seniors Living was started up by industry icons and they couldn't make it work.

It looks like a fire sale by Quadrant Equity and others to exit a dog investment.

Time will tell

If it is indeed a fire sale , it will in turn be a good purchase for Heartland surey .......

My understanding of the reasons the rating agencies may look at second tier banks is because of their exposure to the residential mortgage market and the real possibility of a property bubble burst some time in the future.

That possibility in my humble opinion was reinforced with the announcement today from the Real Estate Institute in regards to house prices and sale numbers.

As a shareholder of Heartland, from day one, I have never seen them as a second tier bank but more as a niche bank with huge potential over time and a bank now run by a excellent corporate board and staff.

I have faith in the directors and their decisions and predict we will see from Heartland other acquisitions and possibly joint ventures as the company slowly but surely goes from strength to strength on their balance sheet.


I am not sure that the CBS investors from Ashburton and Christchurch have the same faith in their directors as you. They got sold down the dunny when they merged Southern Cross and Marac.

The journey has been a long one already with little bottom line progress

A $20 million capital raising but there is only $5m in the SPP to its over 8,000 shareholders.
In this market Seadragon has just successfully raised $4.1 million in a SPP and that was was twice the amount raised in their placement.
Why has this company favoured the placement ahead of its own loyal shareholders ?