UPDATE 2-Australia's Bendigo grows rural finance business with $1.65 bln acquisition

Mon May 5, 2014 12:34am EDT

Related Topics

* Deal quadruples Bendigo's rural farming exposure

* Builds Bendigo's Victorian business while Queensland struggles

* Victoria to invest proceeds in new projects (Adds Bendigo, government and analyst quotes, background, deal detail)

By Byron Kaye

SYDNEY, May 5 (Reuters) - Australia's Bendigo and Adelaide Bank Ltd agreed to buy state-owned Rural Finance Corp for A$1.78 billion ($1.65 billion) in an acquisition that would almost quadruple its loans to farmers.

The deal, formalised by the Victoria state government on Monday, is one of several multibillion-dollar privatistions of government-owned assets. Victoria, whose asset sales have helped return its budget to a surplus, said it would net A$400 million from the Rural Finance Corp sale and invest the proceeds in much-needed infrastructure upgrades.

Bendigo, Australia's sixth-largest retail bank by market value, has said it plans to grow its overall market share from 3 percent to 10 percent by buying smaller rivals rather than by partaking in what it has said is a cutthroat price war for home loans amid record low interest rates.

In particular, the regional bank has said it wants to grow its Victoria rural business after much of the farming industry in Queensland, the other state where it has significant presence, was hit by a string of natural disasters including Tropical Cyclone Ita.

Victoria, which lies south of the country, faces no dangers from cyclones, unlike Queensland. It is also Australia's second-most populous state with a diversified economy. Victoria has a sizable rural and farming community.

"Rural Victoria is much more attractive than Queensland exposure," said Bell Direct stockbroking analyst Julia Lee, adding that the Rural Finance Corp deal will help Bendigo compete better with its bigger rivals.

"The regional banks, especially Bendigo and Adelaide Bank, are in a bit of a difficult position especially competing against their more well-capitalised and larger peers in this space," she said.

Bendigo said the acquisition, with a price tag of one and a half times book value, would almost quadruple its rural loan book to more than A$2.4 billion and would be profitable immediately.

"The bank is predominantly underweight in Victoria at the moment, so this will go some way to balancing that exposure for our group," Bendigo Managing Director Mike Hirst told an analyst briefing.

"It brings it forward without a drain on earnings."

Rural Finance Corp sells various agri-lending products including for housing and property, working capital, vehicles and machinery, and livestock, as well as assistance programs which Bendigo said will continue.

Bendigo said it will undertake a A$230 million share placement to institutional investors, as well as sell new shares in a separate public offer to finance the acquisition. Its shares were placed in a trading halt on Monday, having risen 3 percent in the past year, about half the growth of the overall sharemarket.

VICTORIA SELLOFF CONTINUES

The sale of 70-year-old Rural Finance Corp, headquartered in Bendigo, Victoria's fourth-largest city, comes as state governments look to sell off some A$130 billion of government-owned assets to fund what they say is an urgent pipeline of infrastructure projects such as road upgrades.

Federal Treasurer Joe Hockey has promised state governments a financial incentive of 15 percent of the prices they receive for asset sales in the next two years.

"Proceeds of this divestment, together with the Commonwealth's contribution, will be invested directly back into new job-creating infrastructure," Victoria Treasurer Michael O'Brien said in a statement.

On Monday, O'Brien told local media that Victoria will also proceed with plans to sell two ports, including Port of Melbourne, Australia's largest container and general cargo port, in a deal expected to fetch about A$5 billion. ($1 = 1.0795 Australian Dollars) (Reporting by Byron Kaye; Additional reporting by Thuy Ong; Editing by Christopher Cushing and Ryan Woo)

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