Heartland invests $87m in Sentinel
Heartland Bank plans to profit from New Zealand's ageing population by investing $87 million into businesses that lend money to the elderly.
Yesterday the fledgling bank announced a deal to buy Sentinel, which is New Zealand's biggest provider of reverse equity mortgages with 80 per cent of the market, and its Australian counterpart, Australian Senior's Finance.
Reverse mortgages are used by elderly homeowners to tap into the equity in their property.
The sums of money borrowed and interest accrued is paid back when the occupier either dies, or voluntarily leaves their house.
The niche product has largely been dormant in New Zealand since the global financial crisis, due to the capital constraints of providers.
Heartland chief executive Jeff Greenslade said the plan was to "breathe new life" into the acquired businesses, and then to grow them by making reverse mortgages into a core banking product.
"What we believe is that the demand has not changed, and the demographic logic has not changed. "In fact, it's only got more compelling," he said.
More than 600,000 New Zealanders are already aged 65 years or older, and the number is forecast to grow to 1.1 million in 2031.
Greenslade said the bank's newly formed acquisitions unit had been exploring a revival of the niche loan when the opportunity came up.
"It's much better to buy a mature, successful business rather than starting up [a new one]."
Heartland was buying the $760m loan book of the two businesses "as is", he said, and existing borrowers should not notice any change.
The deal will be settled on April 1, conditional on a range of factors including Seniors Money International shareholders' approval.
It will be financed by a cash payment of $48.3m, as well as the issue of $38.7m worth of shares at 90c each.
The cash portion of the payment will be partially funded by a $20m capital raising.
But the offer includes slim pickings for Heartland's shareholders, who will receive $5m of new shares issued, compared with $15m issued to mainly institutional investors.
If half the roughly 8000 listed shareholders apply for the smallest possible allotment of $2500, the offer will be over-subscribed twice over.
Greenslade would not comment on the likelihood of an over-subscription, but said it would definitely have to be scaled back to $5m.
Heartland's share price rose 2c to close at 91c yesterday, and up 26 per cent over the last 12 months.