The proposed acquisition by Heartland Bank of PGG Wrightson Finance is good news for investors as it increases the scale of Heartland, which will likely to be perceived as positive in the eyes of credit rating agencies.
Heartland will acquire PGG-W Finance for its estimated value of $102.5 million.
Heartland will assume all rights and obligations of PGG-W Finance's bonds, debentures and deposits while also raising $55 million in equity to restore its desired risk-weighed capital ratio.
Forsyth Barr broker Peter Young said yesterday the acquisition was subject to multiple approvals from Treasury, holders of both securities and shares and from banks and trustees.
Before the acquisition, Heartland's loan book consisted of about 5% rural loans.
After the acquisition, rural lending would be nearly a quarter of the loan book.
"More importantly, the loan book is now very balanced, with business, consumer and rural loans now making up 25% each."
The post-transaction loan book also reduced the exposure to borrowers from Auckland - 30% down to 25% - by increasing the exposure to South Island borrowers from 11% to 18%, Mr Young said.
PGG-W had the largest livestock turnover in New Zealand and a large portion of the rural services market, he said.
The distribution agreement facilitated the sale of financial products and services throughout the store network, enabling Heartland to accelerate its rural strategy.
Heartland would have the benefit of PGG-W's extensive distribution channel and large customer base, Mr Young said.
"This is a positive acquisition for Heartland investors as it increases the scale of Heartland.""We would expect Heartland to consolidate now after several months of change where Marac bond and security holders have seen multiple changes in the quest to obtaining banking registration."
Heartland had said it was probable a bank registration application would be filed within the next six months, Mr Young said.
WHAT'S CHANGED
• Increased scale: Heartland will have total assets of $2.6 billion.
• Diversification: Loan book now has a significant rural exposure.
• Distribution agreement: PGG Wrightson will promote Heartland's financial products and services throughout its store network.
