The Equitable Group plans to pull out of life insurance and focus all its attention on Equitable Mortgages, the group's commercial real estate financier, although it's likely to diversify into a wider range of lending activities.
The group's CEO, Peter Thomas, makes these comments in a new prospectus.
Earlier this year KPMG's annual Financial Institutions Performance Survey noted that of the 10 property development and commercial finance companies with total assets of at least NZ$50 million covered in last year's survey, only one - Equitable - was left with what could be termed "normal" operations.
At the time Thomas said Equitable, owned by rich listers the Spencer family, had survived by being steady, boring and unexciting. Now he says changes are being implemented to enable the group to better position itself to meet Reserve Bank non-bank deposit taker regulations (NBDT), notably capital requirements, due for introduction on December 1.
"After a detailed review of the business, the directors and management agree that Equitable will benefit from committing to just one regulatory regime, being the NBDT sector, ie Equitable Mortgages Ltd," Thomas says.
"Equitable will therefore look to exit the life insurance sector, ie Equitable Life Insurance Company."
"We have discussed the proposal with our trustee (Trustees Executors), auditors PricewaterhouseCoopers, the Reserve Bank and Treasury. Our rating agency, Standard & Poor's, has also been notified."
Equitable Mortgages and Equitable Life both have BB- credit ratings having been downgraded from BB in August.
Equitable Life is no longer offering bonds to investors. Existing bondholders will be given the opportunity to transfer their investments to debentures issued by Equitable Mortgages. From December Equitable Mortgages will hold all the units of, and will be the sole investor in, the Equitable Property Mortgage Fund.
Equitable Mortgages will also develop a PIE fund.
The prospectus says Equitable had reinvestment rates of 63.%, 55.6% and 53.3%, respectively, in June, July and August. During the same three months new investments totaled NZ$3.8 million, NZ$4 million and NZ$4.2 million. As of September 10, the group is forecasting a reinvestment rate of 48% over the following six months, with new investments of NZ$2.5 million per month.
At June 30 the group had NZ$190.87 million of debentures and NZ$27.96 million of bonds on issue, giving a total of NZ$218.8 million outstanding.
Meanwhile, Thomas says, Equitable might look to diversify its asset and liability base by extending Equitable Mortgages' authorised investments into a wider range of lending activities, and to ensure the business is positioned to tap any diversified funding options.
"Please be assured that any such changes will be subject to appropriate investor approval, and Equitable will provide a further update to investors," adds Thomas.
The group was "actively working" to ensure it complies with the NBDT regulations and expects to satisfy the 8% minimum capital ratio required from its introduction on December 1.
Equitable, which has been accepted into the extended Crown retail deposit guarantee scheme, has an undrawn NZ$30 million standby loan facility with Westpac.