NZF home loans about to be liberated from company

NZF Group says it is in the final stages of mutual due diligence with an unnamed Australian private company which is expected to take a majority stake in NZF's home loan division.

Friday, June 10th 2011, 4:18PM

by Jenny Ruth

NZF says the Australian company "is vastly experienced in the Australian RMBS (residential mortgage backed securities) market and will add significantly to the current operations of this division."

NZF already has a 50:50 joint venture with Australia-based Liberty Financial which owns the Mike Pero Mortgages franchised mortgage broking group and which has recently formed a real estate venture. Liberty, which has been operating since 1997, is an active RMBS issuer.

While NZF reported a $4.8 million net loss for the year ended March, its home loans division made a $2.5 million operating profit, down from $4.2 million the previous year, reflecting fair value adjustments and higher funding costs.

"The process of finding the right business partner has been an extremely long and difficult process as most interest to date has been purely predatory with interest not focused on any partnership process," says managing director Mark Thornton.

NZF has been looking for fresh equity since early last year.

The home loans division's loan portfolio fell slightly from $200.5 million to $196.9 million in the year ended March, mainly because NZF temporary halted new origination during the due diligence process until this week.

"The proposed joint venture is very exciting as it will produce a financially strong entity with stable and experienced management and a proven track record, able to offer a product range into the New Zealand non-bank financial sector which, as a result of the recent global financial crisis, has seen competition in the local sector virtually eliminated," Thornton says.

Thornton says Westpac, which last week extended NZF's $225 million RMBS facility until October 18, 2012, has been privy to the new joint-venture negotiations.

"The proposed transaction will provide a significant amount of cash at group level which, in turn, will enable the subsidiary, NZF Money, to recommence origination to its specialised area of low-geared, short-term residential secured lending which was its core business prior to the GFC," he says.

International ratings agency Standard & Poor's has cut NZF Money's credit rating twice this year from "B" to "CCC-" and still has it on negative watch. NZF's property finance division's $5.1 million in loan impairment and bad debt costs was the reason for the group's annual loss.

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