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Fitch: No Rating Impact on NZ's Heartland Bank from Parent's Acquisition
February 16, 2014 / 10:22 PM / 4 years ago

Fitch: No Rating Impact on NZ's Heartland Bank from Parent's Acquisition

(The following statement was released by the rating agency) SYDNEY, February 16 (Fitch) Heartland Bank Limited's (HBL) ratings have not been impacted by the announcement of an acquisition by its parent, Heartland New Zealand Limited (HNZ). HNZ has announced its intention to acquire the New Zealand and Australian Home Equity Release mortgage business of Seniors Money International Limited (SMI) on 14 February 2014. HNZ plans to acquire Sentinel New Zealand (Sentinel) and Australian Seniors Finance, including their respective Home Equity Release mortgage portfolios, operational infrastructures, and funding arrangements for NZD87m. The transaction will be funded by cash (NZD48.3m, of which NZD20m will be raised through the issuance of equity to existing HNZ shareholders) and the issuance of NZD38.7m of HNZ shares to SMI's shareholders. The aggregated value of the assets is approximately NZD760m, and will account for 30% of HNZ's total assets. HNZ's intention is to transfer Sentinel's New Zealand mortgages into HBL over the next two to three years, while the Australian mortgage book will remain with HNZ. Sentinel is New Zealand's largest provider of Home Equity Release mortgages, with a market share of 80%. Its acquisition and the step-by-step transfer into HBL follow the bank's strategy of being a major player in niche products in New Zealand. The size of Sentinel's New Zealand book is NZD340m, and the transfer will be funded through the growth in customer deposits. As most of New Zealand's population holds its wealth and future pension in property, Fitch believes there is reasonable potential for further growth. Potential risks are mostly, but not exclusively, of an operational nature. HBL has put in place tight guidelines to limit these risks and protect its reputation. Fairly strict loan-to-value (LVR) limits should protect HBL from any potential house price corrections. However, longer life expectancy could create repayment pressure. As the transfer will take place over time, the impact on HBL's capital should be manageable, and Fitch expects HBL will improve its retained earnings. The loan book is well seasoned and diversified, with Sentinel's average LVR standing at 32.7% in December 2013. The Australian Home Equity Release mortgage book will remain on HNZ's balance sheet, funded exclusively by Commonwealth Bank of Australia's (AA-/Stable) funding arrangements. The acquisition is still subject to certain conditions, including SMI shareholders consent. HBL's ratings are as follows: Long-Term IDR: 'BBB-'; Outlook Stable; Short-Term IDR: 'F3'; Viability Rating: 'bbb-'; Support Rating: '5'; and Support Rating Floor: 'NF'. Primary Analyst: Andrea Jaehne Director +61 2 8256 0343 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst: Tim Roche Senior Director +61 2 8256 0310 Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014 are available at www.fitchratings.com. Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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