F&P Finance to promote non-Crown guaranteed deposits ahead of extended scheme

Fisher & Paykel Finance plans to start promoting non-Crown guaranteed debenture investments, offering investors interest of up to 8.5%, as the consumer finance lender moves to start weaning itself from the extended Crown retail deposit guarantee scheme even before the scheme takes effect on October 12.

Alastair Macfarlane, F&P Finance managing director, told interest.co.nz the subsidiary of whiteware maker F&P Appliances would soon start a new promotion offering punters both guaranteed and non-guaranteed investments. Already a party to the existing Crown retail deposit guarantee scheme, F&P Finance was recently approved to the extended guarantee scheme, which runs from October 12 when the current scheme expires until December 31 next year.

“We haven’t publicised those rates yet but to our existing investors, we will be offering rates in the order of magnitude of around about 8% for non-guaranteed deposits,” Macfarlane said. "The point we are promoting is the choice between guaranteed and non-guaranteed. Up until now we've only been (promoting) guaranteed deposits but the promotion will be to offer our investors the chance to take either guaranteed or non-guaranteed."

"We will be actively looking to reduce the dependence on that [extended] guarantee from now through to that period," Macfarlane said.

The company's website outlines offers for 12 and 18 month non-guaranteed debentures to existing investors at 8% per annum and two, three, four and five year debentures for existing investors at 8.5% and 8% for new investors. Guaranteed debentures are offered at 7.25% for existing investors and 6.75% for new investors. Five year guaranteed debentures are offered at 8% to existing investors and 7.5% to new investors. F&P Finance has a BB, speculative or junk grade, credit rating with a stable outlook from Standard & Poor’s.

As part of F&P Appliances' March year results, F&P Finance on Friday posted a 66% jump in net annual profit to NZ$15.6 million. Although interest income slipped NZ$3.1 million to NZ$108.2 million, interest expenses, buoyed by lower interest rates, fell NZ$12.2 million to NZ$38.8 million. The firm's net margin rose 1.5% to 10.6% with its cost-to-income ratio down 2.6% to 37.5%.

Macfarlane acknowledged that although F&P Finance is no longer officially on the block - F&P Appliances tried unsuccessfully to sell its finance subsidiary from late 2007to early 2008 - if the right offer came along it could be.

“I would imagine if a party came to the appliance holding company’s board and presented a proposition that was closer to their expectation of value, then the board would consider it again,” Macfarlane said. “But right now there’s no indication that that is the case.”

F&P Appliances’ now has NZ$199.4 million invested in its finance unit. In 2008 it said it wouldn't sell the business because offers had failed to meet its asking price which analysts' estimated at about NZ$300 million.

On the flip side Macfarlane said F&P Finance had investigated a number of potential acquisition opportunities but these were ruled out because they either featured distressed portfolios or were active outside F&P Finance’s core consumer finance arena in vehicle or property finance. However, the company did recently acquire a NZ$22 million receivables book, including arrangements to provide future financing, covering fixed installment contracts for household equipment such as air conditioners.

This, Macfarlane noted, was consistent with F&P Finance’s focus on the financing of equipment that goes into a house such as television sets, washing machines, beds, furniture or ,as in this case, air conditioning units.

Founded in 1973, F&P Finance started out with the primary activity of renting TVs under the F&P Dealer Rentals Ltd name. In 2003 it acquired the Farmers Trading Company’s finance and insurance operations in a NZ$311 million deal.

The firm gets debt funding from three sources. At March 31 29%, or NZ$157 million, was from retail debentures, 39% or NZ$215 million, was from commercial paper debt to fund its Farmers business, and 32% or NZ$335 million, came from bank debt. As of March 31, NZ$70 million of the commercial paper programme was unutilised and NZ$158 million of its bank facility – in place with the likes of ANZ, BNZ and Westpac – was undrawn. Debenture reinvestment rates averaged 63% over the past six months and hit 80% in April.

In Friday's group results F&P Appliances managing director Stuart Broadhurst noted F&P Finance should remain resilient in the year to March 2011 although the expected Reserve Bank interest rate hikes would put pressure on earnings. Macfarlane said higher interest rates would put pressure on both funding costs and households.

"(But) the Reserve Bank is conscious of inflation control so we just have to accept that will be a reality we have to face."

 This article was first published yesterday in our paid subscriber email for bank executives, regulators and other industry experts. Subscribe here or email bernard.hickey@interest.co.nz

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