PGC obliges CBS, SCBS request to keep management & risk of Marac property loans outside proposed 'Heartland Bank'

PGC obliges CBS, SCBS request to keep management & risk of Marac property loans outside proposed 'Heartland Bank'

Pyne Gould Corporation (PGC) has agreed to a request from the Canterbury Building Society (CBS) and Southern Cross Building Society (SCBS), who are merging with its subsidiary Marac Finance, to shunt management of nearly NZ$150 million worth of Marac property loans to another PGC subsidiary - Real Estate Credit Ltd.

This disclosure is made in the 228 page information memorandum released by the three merger partners who hope to ultimately obtain an investment grade credit rating from Standard & Poor's and banking licence from the Reserve Bank enabling them to create a 'Heartland Bank.'

Real Estate Credit will enter a management agreement with Marac for the management of certain non-core Marac real estate loans. As of its June 30 balance date, these Marac property loans were valued at NZ$147 million.

"Such an arrangement will benefit Building Society Holdings (the working name for the merged entity) as it will reduce Marac's exposure to real estate related loans because Real Estate Credit would assume a risk of loss on loan realisation, and accordingly is expected to enhance the likelihood of Combined Building Society achieving an investment grade credit rating," the information memorandum says.

At BB+ Marac's credit rating, which is on CreditWatch Positive, is one notch below investment grade. CBS also has a BB+ rating and SCBS a BB one.

In its annual results Marac said it had reduced its property book to NZ$147 million at June 30 from NZ$374 million a year earlier. Marac last year transferred NZ$175 million worth of non-performing property loans to Real Estate Credit. In the year to June Marac recorded NZ$10.7 million worth of impairment charges from the property sector.

Marac, which has refocused core lending in vehicle leasing and plant and equipment finance, stopped lending to property developers about two years ago. The company says the only property loans it would consider now are those for customers who have an ongoing relationship with Marac. For example, if a transport firm that had vehicles financed through Marac wanted to buy its yard, Marac would consider lending money for the purchase.

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A great start but Marac needs to give CBS shareholders about 20% of the new bank  to make this a fair deal.

$147m worth of sick property loans. Add that to the Hanover, SCF, Dominion etc bad property loans NZ must have some pretty sick looking sub-divisions, commercial developments and dairy farms.

When do these loans get tipped over? or Are we all hoping the market improves and they can be realised or can start making penalty payments (Yeah right)