The Irish assets of Australian financial services firm Pepper could be sold by its new owners in an attempt to streamline the business and focus on the group’s core markets in Australasia, according to a senior financial analyst.
Investec’s Owen Callan said US private equity firm KKR, which has agreed to buy Australia’s non-bank mortgage lender in a deal valuing the company at € 451 million, may decide to opt out. divest assets because they represent such a small part of the overall business. .
“Unless they have some sort of big strategic vision of what they want to do with European assets, including Irish assets, then I suspect they would be willing to take offers for them,” he said. he declared.
Mr Callan said the assets, a mix of inherited debt and new mortgages, could be of interest to private equity groups studying the Irish property market or traditional banks keen to increase their loan portfolios in a market with potential. of moderate growth.
A spokeswoman for KKR said it was too premature to comment at this point because Pepper shareholders had yet to approve the deal.
The Sydney-based Pepper Group was part of an early wave of foreign buyers of Irish assets at the height of the crisis, buying up GE Capital’s € 600m subprime mortgage loan at 40 cents on the euro.
Much of the Irish business, however, is focused on the management and servicing of loans for foreign banks which withdrew from the Irish market following the crash, and for foreign buyers of loan portfolios.
Pepper’s Irish unit, which employs more than 400 people in Shannon and Dublin, currently manages around € 18 billion in loans, roughly split between commercial and residential loans, for companies such as capital companies. Lone Star and CarVal investment as well as Dankse Bank and Lloyds Banking Group, which is withdrawing from the Republic.
More recently, Pepper’s Irish business, headed by Managing Director Paul Doddrell, entered the mortgage market and last year and last month some € 150m in home loans were drawn down or in the process of issuing.
“A question arises as to whether the new owners want to continue this business and see it as a solid long-term investment,” said Mr. Callan. Either way, he said the acquisition was unlikely to have a major impact on Pepper’s Ir customers here.
As part of the proposed buyout, Pepper shareholders will receive A $ 3.60 per share, the Sydney-based company said in a statement, up 5% from Wednesday’s closing price, but less than the 3. 75 Australian dollars at which the stock was trading before the KKR. filed its offer earlier this month.
Pepper’s board of directors recommended that shareholders vote in favor of the deal, the company said in the statement. Shareholders will also receive a dividend of 3 Australian cents and will have the option of accepting a stock alternative to retain a stake in Pepper.
Shares rose 2.9% to AUS $ 3.53 when trading in Sydney closed. The stock has gained 20% since speculation on a deal was first reported by the Australian Financial Review May 28.
The Australian real estate market
The purchase of Pepper will give KKR exposure to selling residential mortgages in Australia, whose largest cities have seen prices soar over the past five years, causing regulatory restrictions on bank lending to some customers amid fears of a real estate bubble. Pepper, which obtains much of its funding through securitization, also has operations in Ireland, Spain, the United Kingdom and South Korea.
“Pepper is poised to thrive in today’s market environment,” said Dan Pietrzak, Managing Director of KKR Credit. The company intends to work with management to “maximize its full potential,” he said.
As a non-bank lender, Pepper has not been affected by the recent regulatory crackdown on mortgage lending standards. The Australian Prudential Regulation Authority received new powers over non-bank lenders this year, but has yet to say how it intends to use them.
KKR’s current investments in Australia include stakes in Latitude Financial Services and tomato producer Sundrop Farms, according to its website.
Pepper is advised by Citigroup, while JPMorgan Chase advises KKR. Meanwhile, KKR is best known in Ireland lately for partnering with the Irish Strategic Investment Fund to set up a € 500million fund to invest in financing residential property development.
In 2014, KKR acquired Dublin-based Avoca Capital, a European credit investment manager that at the time had $ 8 billion (€ 7.05 billion) in assets under management. KKR is said to have fought competition from other private equity firms, including Bain Capital, in its offer to acquire Pepper.
– (Additional report: Bloomberg)