Heartland Group Holdings is unveiling plans for a NZ$210 million equity raise required for regulatory approval of its acquisition of Australia's Challenger Bank, whilst also revealing its founding CEO, Jeff Greenslade, will step down at the end of 2024.
Heartland Group, parent of Heartland Bank, says it has received indicative regulatory approval from both the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) for the acquisition of Challenger Bank from the ASX listed Challenger Ltd.
APRA and RBNZ's approval, however, is conditional on the equity raise. This comprises a $105 million underwritten share placement, and a $105 million underwritten 1 for 6.85 accelerated non-renounceable share entitlement offer. Both are underwritten by Jarden Partners.
Heartland's shares were placed in a trading halt Monday morning.
Heartland says proceeds from the equity raise will be used to finance the balance of the consideration payable for the Challenger Bank acquisition, support the expected regulatory capital requirements of Challenger Bank and Heartland Bank, and cater for near-term projected asset growth after the deal's completed. Subject to receiving the final regulatory approvals, Heartland expects to complete the Challenger Bank acquisition on April 30.
When the Challenger deal was initially announced in October 2022, Heartland valued it at about A$36 million. It's now put at about NZ$50 million. It says another $105 million of the equity raise will be used to recapitalise Heartland Bank Australia, and $50 million for growth capital.
"Completing the Challenger Bank acquisition will make Heartland Bank the first New Zealand registered bank to acquire an Australian Authorised Deposit-Taking Institution (ADI)," Heartland says.
"Shortly after completion, Heartland will transfer Heartland Australia Holdings Pty Limited and its subsidiaries (which include Heartland’s existing Australian reverse mortgage business (Heartland Finance) and livestock finance business (StockCo Australia)) (together, Heartland Australia) to Challenger Bank. This is expected to occur on 2 May 2024."
"The acquisition is a critical step in Heartland’s strategy for expansion in the Australian market and achieving its long-term growth ambitions. Heartland is already well-established in Australia through Heartland Australia. At 31 December 2023, together, Heartland’s Australian reverse mortgage and livestock finance businesses had approximately NZ$2 billion of gross finance receivables," says Heartland.
Challenger Bank will be rebranded to Heartland Bank Australia, becoming the only specialist bank provider of both reverse mortgages and livestock finance in Australia. Heartland also plans expansion in Australia in areas where it's already active in New Zealand such as vehicle and asset finance.
"Expansion will be enabled through access to retail deposits, allowing Heartland to optimise the advantage of a lower cost of funds. Challenger Bank continues to actively raise deposits ahead of being acquired by Heartland Bank and will continue to do so following completion. Challenger Bank’s retail deposit growth to date has exceeded Heartland’s expectations. In the period between 30 December 2023 to 29 March 2024, Challenger Bank achieved retail deposit growth of A$702 million at a rate that is 1.74% lower than Heartland Australia’s current cost of funds," Heartland says.
"Having regard to the equity raise, acquisition of Challenger Bank and associated growth opportunities, the [Heartland] Board expects to target a total dividend payout ratio in the financial year ending 30 June 2024 of 50% of underlying net profit after tax. The Board will, as it has historically, actively manage dividend settings and carefully consider the declaration of any dividend based on Heartland’s capital needs, return on equity accretive growth opportunities, balance sheet flexibility and Heartland’s financial performance."
Heartland's dividend payout ratios have previously been around 70% to 75%.
Meanwhile Heartland says Greenslade plans to leave his role as CEO of Heartland at the end of 2024. He has been CEO since Heartland was formed in 2011 and subsequently received banking registration from the RBNZ in 2012.
"The Board is confident in the continuation of senior expertise within the Heartland group, and will work closely with Jeff on succession planning through the calendar year to ensure a successful transition."
Michelle Winzer has been named CEO of Heartland Bank Australia, subject to the acquisition's completion. Winzer's currently CEO of Queensland's RACQ Bank, and is a former CEO of Westpac subsidiary, Bank of Melbourne.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.