Avanti Finance converts sister firm Galatos into subsidiary

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Avanti Finance, a mid-sized finance company has expanded its balance sheet by buying the entire shares in its sister company Galatos to make it a wholly-owned charging subsidiary.

Friday, October 15th 2010, 6:53AM 1 Comment

Until now, Avanti Finance and Galatos operated as sister companies owned by the same parent G&S Investment. Galatos purchases loans from Avanti by funding it through a bank facility it has with ANZ while Avanti funds itself through debentures.

The shares were bought at a net asset value of around $13.8 million. CEO Glenn Hawkins says the deal had an endorsement from Standard & Poor's who were keen to see more clarity in the relationship.

For Avanti debenture holders, the development is a positive as Galatos is now a guarantor to the securities offered by the company under its prospectus. The charge, however, will rank behind the existing general security agreement that Galatos has granted in favour of its bank.

It may be noted that in August, S&P revised the outlook on Avanti to stable from negative while confirming the BB- credit rating. The move reflected its view that the company will continue to successfully manage its asset quality and credit costs.

Avanti is among the rare finance companies which is not actively seeking debenture investments.  One of the reasons is that Galatos has successfully managed to get its term facility increased with ANZ to $40 million from $30 million and also extend it to August 2012. In August 2008, ANZ, pleased with Avanti's performance changed the loan facility to term from a demand one, Hawkins notes with a sense of pride.

"The company is now happy with bank- debenture funding model. They are complementing each other," Hawkins says.

Avanti only accepts debentures with minimum investment of $10,000 and for a minimum term of 12 months.

Asked about consolidation in the finance sector, Hawkins says the company was invited to look at buying other finance companies but didn't take any discussions further.

"We would like to grow organically," Hawkins said, expressing scepticism about acquisition because even though the deal may look cheap, a look behind the books may reveal otherwise.

As of March 2010, Avanti had a debenture book of $19.2 million made up of just 49 investors, down from 59 investors and a stock of $21.4 million the year before. Net loans stood at $32.1 million after taking in to account impairment allowance of around $1.8 million. The company is well-capitalised with equity of around $13 million.

Galatos had loans of $36.2 million funded via bank borrowings of $23.1 million and the balance coming from the strong equity position of $13.3 million.

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