* Deal quadruples Bendigo's rural farming exposure
* Builds Bendigo's Victorian business while Queensland
* Victoria to invest proceeds in new projects
(Adds Bendigo, government and analyst quotes, background, deal
By Byron Kaye
SYDNEY, May 5 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
"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
"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
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)