ANZ's New Zealand vehicle and assets finance provider subsidiary UDC Finance has reported another rise in interim earnings as it mulls a return of funds to investors late this calendar year.
UDC's half-year, after-tax, profit rose 6% $34.7 million for the six months to March 31. Overall revenue was $73.4 million, an increase of 11%. The company said growth was driven by continued consumer and business investment in motor vehicles, plant and machinery.
Early this calendar year UDC stopped taking secured term investments from the New Zealand public after reviewing its funding sources. It said it was looking at repaying all UDC secured investments in mid to late 2019.
Subsequently there's been no public update either from ANZ or UDC on that, but in its interim report to March 31 UDC says "the current intention" is to repay or existing secured investments "in or up to late 2019" and wind up the company's debenture programme.
The latest report shows that as at March 31 UDC held $782.647 million in secured investments from the public, down from $931.28 million as at the end of the financial year to September 2018.
Going back a few years UDC's debenture programme was quite sizeable.
However, then ANZ put UDC on the block in what ultimately proved a tortuous and embarrassingly botched sales process. A planned (and announced) sale to opaque Chinese buy-everything conglomerate HNA fell through after the Overseas Investment Office, which had to rule on whether the sale could proceed, couldn't even satisfy itself who the ultimate owners of HNA were.
ANZ officially called off efforts to sell UDC towards the end of 2018, though clearly retains an open mind about selling it if it can get a good price. Previous articles can be seen here.
Through all this turbulent activity, the sources of UDC's funding have evolved considerably.
UDC's interim financial report for the period to March 2016 - just before the 'for sale' signs went on UDC - showed that secured investors had deposits with UDC totalling $1.737 billion, while ANZ had advanced its subsidiary $380 million.
That means that at that stage 82% of UDC's borrowings were funded by the public and just 18% by ANZ.
In the latest half year to March 31 2019 the advances from ANZ to UDC stood at $1.95 billion.
This meant that as of this year ANZ was bankrolling 71.4% of UDC's borrowing and the public just 28.6% - which is a very big reversal in just three years. ANZ's increased financial commitment has come, ironically, at the very time it was trying to offload UDC.
In 2017 when ANZ believed a sale of UDC to HNA was going to proceed (for $660 million) the UDC trust deed was changed to allow early repayment of secured investments and with UDC investors to be offered 'ANZ equivalent products'. That remains the case and so it would be a reasonably simple process for UDC to later this year, once a final decision is made, repay those investments.
Indeed the existence of that early repayment clause in the trust deed now is probably the very reason why ANZ/UDC have decided to end the debenture programme, since such a clause would probably be seen as a deterrent for any new investors to come into UDC with term investments - given that they may then face being repaid at any time well before the term of the investment is officially up.
In the meantime, through the dramas of the aborted sale process, UDC has continued to, well, truck on, with rising profits and a growing loan book, with net loans and advances topping the $3.3 billion mark as at March 31, 2019 (up from $3.22 billion as at September 30, 2018).
Commenting on the latest interim result, UDC chief executive Wayne Percival said the company was pleased to deliver the latest result "during a period of more caution in the New Zealand economy".
"While businesses are approaching investment in new equipment and vehicles with more consideration, the prospects for many of the key industries we focus on, such as forestry, road transport and the construction sector remain positive.
“We are committed to supporting our customers and helping them grow their businesses. Focusing on strong, long-term relationships with our customers is important and their ongoing support enables us to continue growing.
"The level and quality of enquiries our machinery and equipment partners saw at the recent National Fieldays also reflected a sound outlook for the broader primary sector."
Percival said provision expenses, at $7 million, remain low as a proportion of UDC Finance’s total portfolio. The overall quality of UDC Finance’s lending book remained strong and there were no individually significant write-offs during the reporting period.
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