Listed holding company would control a 'Heartland Bank' building society

The proposed Pyne Gould Corporation (PGC) led Heartland Bank will be established through an NZX listed non-operating holding company which would oversee the operating company, a building society.

This building society would comprise the businesses of the Canterbury Building Society (CBS), Southern Cross Building Society (SCBS) and PGC’s Marac Finance, the chairmen of the three partners said in letters to their investors.

PGC announced early in June plans to merge its finance company Marac with the two building societies, enabling them to create greater scale and tap a bigger retail deposit funding base as they seek an investment grade credit rating and bank licence from the Reserve Bank. The plans envisage a NZX-listed "Heartland Bank" headquartered in Christchurch that would aim to double its NZ$2.2 billion asset base within five years through growing family, small business and agricultural lending.

The proposal calls for CBS and SCBS to be amalgamated and then acquire Marac. PGC would be the cornerstone shareholder. The group would have 360 staff and 70 customer outlets.

PGC chairman Bruce Irvine said structure wouldn’t require any change to the Building Societies Act. The three group’s boards will need to sign a Merger Implementation Agreement.

“Ultimately the merger would require PGC shareholder approval as well as approvals by way of special resolutions of the shareholders of the two building societies,” Irvine said.

“Depositor and bondholder approvals would also be required. If the merger proposal proceeds it is expected that meetings to vote on the proposal would take place sometime in November.”

He added that extensive due diligence and a detailed valuation process were well underway. This would establish the relative values of the existing groups in the new merged entity.

Meanwhile, CBS chairman Gary Leech said the building society would head up the banking operations of the new group, undertaking all debt raising including deposit taking. There was potential for a crossover in product offerings Leech said.

“For example: many of our mortgage-lending customers also have insurances and chattel loans that we currently do not capture. Likewise many of Marac’s chattel loan or PGC’s insurance customers will have mortgages Marac does not finance."

He noted that whilst CBS was focused in the South Island, SCBS had a North Island focus with a large capital pool.

“Based in Auckland, it has a significant regional reach including 40 independently owned and operated agencies located throughout the North Island. SCBS also offers a range of products and services including savings accounts, term investments, internet and telephone banking, home loans, rural loans and commercial loans,” said Leech.

“Its principal assets are first mortgage advances on commercial, rural and residential properties, Government and Local Authority Securities, Bank Deposits and Commercial Bills, and land and buildings leased as office accommodation.”

He told investors they would become a shareholder in a robust company, considerably larger than CBS.

SCBS chairman Geoff Ricketts said since the merger intentions had been announced there had been a broad level of support received including from regulators, credit rating agency, legislative authorities and politicians.However, he said much work remained to be done. Once merger terms were agreed and a merger implementation agreement signed, there would be a further update.

All three entities currently have speculative, or junk, grade credit ratings and the merged group would need an investment grade rating to obtain a banking licence. Standard & Poor’s noted in June that if the merger was completed, debt providers could benefit from exposure to the bigger and more diversified financial institution.