October 13, 2019 / 11:53 PM / a month ago

KKR, Deutsche Bank, Varde discount Australia's Latitude IPO: sources

SYDNEY (Reuters) - U.S. private equity firm KKR & Co (KKR.N) and its partners have lowered the IPO price of their Australian non-bank lender, Latitude Financial, by up to 20.9% ahead of its expected listing on Friday, two sources told Reuters.

FILE PHOTO: Trading information for KKR & Co is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., August 23, 2018. REUTERS/Brendan McDermid/File Photo

The owners will now seek to raise about A$1 billion ($678.6 million) in exchange for about 33% of the company, down from the previously planned 35%, the sources with direct knowledge of the situation said, in the largest IPO in Australia since July 2018, according to Refinitiv data.

The new price is about A$1.78 per share, giving the company a market valuation of about A$3.1 billion, between 11% and 20.9% lower than the previous pricing range, the sources said. The sources asked not to be identified because they were not allowed to talk to the media.

A Latitude LFS.AX spokesman declined to comment.

It is the second attempt to list Latitude by KKR, Deutsche Bank (DBKGn.DE) and Varde Partners. The trio had filed a prospectus with the regulator last month valuing the finance company at between A$2 and A$2.25 per share.

The pricing cut was decided on the weekend, the sources said, ahead of a two-day bookbuild ending on Wednesday.

Although some investors had already committed to buy about 35% of the shares on offer at the lower end of the range, KKR and its partners believed a lower price would achieve better support. Shares in the company would also have a better chance of trading higher on Oct. 18, when they start trading under the code LFS, the sources added.

The firm, which offers easy-access loans and credit cards with minimal paperwork, expects to report 3% growth in cash earnings of about A$288 million for the 12 months ending June 2020, according to its prospectus.

It has about A$8 billion in gross loans to 2 million customers, primarily credit cards, personal loans and auto loans, and it plans to grow its digital and installment payment business, the prospectus says.

CAUTION

While analysts and investors welcomed the move to lower the offer price, some said the discount was not big enough for the IPO to be considered attractive.

“This new price is a little bit under our valuation of A$2 per share, but it would need to come down a bit more before we would argue it is attractively priced,” said Nathan Zaia, a banking and insurance analyst at Morningstar.

“That’s simply because of the risks that we do see around this business.”

Some of those, Zaia and investors noted, included the risks of rising bad-debts and high competition in the digital and installment payment sector, where Latitude wants to grow.

KKR, Deutsche Bank and Varde Partners founded Latitude in 2015 when they bought GE Capital’s Australian and New Zealand consumer lending arm for A$8.2 billion.

Last year, Latitude deferred a planned IPO that would value the business at about A$5 billion due to market conditions and a change in its management, while the country’s financial industry was also being scrutinized by a national misconduct inquiry.

Reporting by Paulina Duran in Sydney; Editing by Stephen Coates

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