Broadlands Finance, looking to move up to 2nd tier lending from 3rd, seeks funding from wealthy Japanese

By Gareth Vaughan

Car and consumer lender Broadlands Finance, a survivor amid the finance company meltdown of recent years, is tapping wealthy Japanese retail investors and also plans to target KiwiSaver fund managers as it strives to bolster its shareholder and retail debenture funding base.

Broadlands CEO Stephen Wilkinson told interest.co.nz in a Double Shot interview that the Tony Radisich owned Broadlands was targeting Japanese investors via an English investment company, Fluid Capital.

“They came to us with an opportunity and said we think there’s an opportunity to get some money out of high net worth individuals in Japan,” Wilkinson said. “They’ve put together a structure over there and that structure’s now in place and we are hoping that might well drive some business through our debenture funding model that we’ve got in New Zealand at the moment.”

With Japan’s official interest rates between 0 and 0.1%, Wilkinson said Broadlands was “pitching an offer to them that’s pretty attractive.”

Broadlands, which has just issued a new prospectus, currently advertises a 27 month special with a minimum investment of NZ$5,000 that pays 9.75% per annum. See all bank and finance company term deposit and debenture rates here.

“The feedback that we’ve had to date has been very clear that there’s a move by a lot of high net worth individuals in Japan to start moving money offshore because of what’s happening up there at the moment,” Wilkinson said. “I guess we’d just like a little small share of that and hopefully this structure will allow us to get that.”

Broadlands has a partnership agreement with the Seychelles-registered Fluid Capital known as Broadlands Finance Funding. The partnership can subscribe for debentures but there's no obligation for it to do so and no obligation on Broadlands to accept a debenture application. Broadlands has paid Fluid Capital fees to establish the partnership, and will pay commission and an administration fee on debenture applications accepted, as well as meet the partnership's currency hedging costs.

Any Broadlands debentures issued through the partnership will rank equally with Broadlands' other debentures.

KiwiSaver in sights too

Another potential funding source Broadlands is looking to tap is KiwiSaver, where Wilkinson said there was potential for some KiwiSaver funds to have a fixed-term component offering 9-10% interest rates.

Previously the general manager of sales and finance at Geneva Finance, Wilkinson replaced Rudi Kats as Broadlands’ CEO earlier this year. A veteran of the finance company sector, he has also had stints at Marac Finance's Ascend Finance and South Canterbury Finance's Auckland Finance. He was also CEO of Equitable Life from 1995 to 1996.

Broadlands, which rejected the offer of a NZ$100 million funding line from US vulture fund Fortress Credit Corporation in 2007, is owned by wealthy car dealer Tony Radisich. On top of its shareholder and debenture funding Broadlands is keen to secure a third funding line and having roused little interest from banks, is now eyeing Japan.

“We’ve talked to some of the banks, at the moment the banks don’t have an appetite for finance company lending,” said Wilkinson. “I think my view of the banks is very simple. They’ll lend us the money when we don’t need it. It’s going to take a bit of time for them to get some confidence in the sector.”

Broadlands’ last financial results, for the year to March 31, show a profit of NZ$2.58 million versus a loss in the previous year of NZ$1.85 million driven by a net impairment gain of NZ$2.67 million on financial assets after a NZ$6.35 million loss the previous year. Broadlands, which replaced BDO with Grant Thornton as its auditor late in 2010, had cash of NZ$528,504 at March 31 down from NZ$1.24 million a year earlier. Gross finance receivables stood at NZ$31.67 million including a NZ$5.3 million impairment allowance, versus NZ$35.35 million and NZ$11.8 million a year earlier.

At March 31 it had NZ$12.57 million of debentures on issue, down from NZ$15 million. Broadlands also had total equity of NZ$17.6 million including share capital of NZ$14 million and retained earnings of NZ$3.6 million. Broadlands has a total of NZ$11.9 million payable to Radisich through loans and debentures. Of this NZ$309,878 is on call with the rest maturing between October this year and October 2015.

“Tony has done what a lot of other shareholders and directors haven’t done in our industry,” Wilkinson said. “He has put his money where his mouth is. Very clearly Tony is committed to the business.”

As of March 31 Broadlands had 2,689 loans outstanding at an average size of NZ$11,780. Of those, 77% were either vehicle or personal loans, 20% commercial and wholesale, and 3% property.

Broadlands has a B speculative, or junk, credit rating from Standard & Poor's with a negative outlook. See more on the credit rating here.

Moving up to 'second tier lending' from 'third tier'

Wilkinson said Broadlands was now looking to move from being a third tier lender to a second tier lender targeting the consumer lending and small business lending markets. The easiest way to explain the difference between the third and second tiers was through interest rates.

“If you take third tier, which is really the bottom end of the market, that’s predominantly 25% to 35% interest rates in broad terms and you’d find the Instant Finance’s of this world are in that model.”

“First tier is probably 12-18% and you’ve probably got the banks in there. Second tier, which is really where we’re trying to position ourselves, in that 18-22 or 23% mark and it’s predominantly what we call middle New Zealand,” Wilkinson added.

This includes people who don’t meet bank criteria, or find the banks difficult to deal with, and are looking for a quick solution.

“They’re generally people who are working, have stable surroundings around them and some of those people may have made some mistakes in the last three or four years just through the availability of credit. Most of them that we see at the moment are trying to repay debt as opposed to necessarily borrow at the moment, (but) that trend will change.”

'Steady, unspectacular growth targeted'

Broadlands, meanwhile, has a three-year strategic plan that eyes a steady, but unspectacular, growth path. This doesn’t mean the company won’t consider acquisitions as funding allows.

“We would expect that we’d double our size in the next three years,” Wilkinson said. “But that’s from a very small base, a NZ$30 odd million dollar book to a NZ$60 odd million dollar book.”

“That to me is manageable without taking too many risks,” he added.

"And I guess from an investors’ point of view if people were going to put their money into Broadlands from a funding perspective, that has probably got to be seen as quite a sensible way to approach the business model.”

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