Canterbury Farming, August 2011

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28,500 copies distributed monthly – to every rural mailbox in Canterbury and the West Coast.

INSIDE Page 02

Wilding pine – out of control or manageable? Page 09

Irrigation issues

‘Quantum Leap’ for Heartland in PWF acquisition by Hugh de Lacy Buying PGG Wrightson’s finance arm for $102.5 million is ‘a quantum leap’ for the Heartland Building Society’s goal of becoming a fully-fledged bank in head-on competition with the Australian-owned players that dominate the New Zealand banking industry. That’s the view of Heartland chief executive Jeff Greenslade who told Canterbury Farming the acquisition gives the bank-to-be a much wider base and ‘accelerates our growth trajectory’.

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A New Zealand First

Heartland, formed in January this year by the merger of the Canterbury and Southern Cross Building Societies and Marac Finance, is awaiting only the final approval of PGG Wrightson Finance (PWF) bondholders and depositors on the transfer of debt securities for the acquisition to go ahead. The price comprises $90m in excluded loans, $5m in deferred tax and $7.5m in cash and brings with it a strategic alliance between Heartland and PWF’s parent company that gives the proposed bank access to PGG Wrightsons’ extensive farmer client base.

CONTACT US Canterbury Farming 03 347 2314

August 2011

PWF is a neat fit in Heartland’s aim “to be a financial institution that’s geared to the productive sector, particularly SMEs [small-tomedium enterprises] and the rural sector,� Greenslade said. “We had a small rural capability here in Heartland

prior to the acquisition, and though it’s growing quickly it’s still very small. “The acquisition gives us a quantum leap in terms of clients, loans and depositors in the rural sector. “More importantly and more long-term, it gives us the opportunity to develop an enduring relationship with PGG Wrightson, and to be aligned to their national network,� he said. Greenslade added that the relationship with the country’s biggest stock and station firm was an exclusive one, though both sides would have the opportunity to review that exclusivity periodically. “We want to be alongside them providing finance as an enabler to their business, so it’s a win/win for both organisations.� Heartland will gain a licence to use the PWF brand through a distribution deal in association with certain products, while PGG Wrightsons will promote Heartland financial products on a commission basis to its stock and station clients. Heartland, which has total assets of $2.6 billion, has been given a BBB- credit rating with a stable outlook by global rating agency Standard and Poors, an investment rating that Greenslade describes as ‘an important milestone’ in the society’s progress towards

recognition by the Reserve Bank as a trading bank. Greenslade is uncertain as to when that recognition will come through and customers can begin to patronise their local branch of Heartland Bank. “There are no guidelines or prescribed time frame: it will be when it will be,� he said. Early this month Heartland launched a $35m fully underwritten share purchase plan, with the 8200 existing shareholders being offered shares at a 5% discount to the average end-of-day market price over the five days up to August 25. The price is capped at 75 cents a share, and eligible shareholders can apply for up to $15,000 worth. The $35m raised will be added to a recent $23m placement comprising $10m with PGG Wrightsons, $10m with Pyne Gould Corporation and $3m with an institutional investor. The total of $58m raised means the society will have a robust balance sheet even after the PWF acquisition. Early this month Heartland shares were trading at around 57 cents, giving the society a capitalisation of $171m. Greenslade said the partnership with PGG Wrightson was “almost like turning back the clock to the old days when finance and the rural side were linked.

Jeff Greenslade Heartland chief executive

“Now, for regulatory reasons, it’s very hard to have finance integrated into another business because the regime encourages financial specialisation, but we want to be very closely linked to the rural sector via PGG Wrightson, particularly around the livestock side. “We want to be there to provide seasonal finance to farmers, for dairy herds, for dairy farmers, as well as rural contractors, transport and manufacturing.� Defining SMEs as businesses with turnover of up to $20m, Greenslade said Heartland’s goal was to “make sure credit is available where it’s needed in the economy, and top of the list has got to be the rural sector.� Asked whether it was a good time to launch a bank given the turmoil on global markets

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following Standard and Poor’s cutting the United States credit rating, Greenslade said that, “perversely,� it is. “The right time is at this part of the cycle when credit’s in short supply. “The current turmoil we’re seeing is not linked to the financial sector. “It’s the sovereign sector: people are having doubts about certain governments – 2008 was certainly about the banking sector, but this is about governments. “For us, we’re 100% New Zealand funded, so we borrow all our money from within New Zealand and we lend all our money within New Zealand. “What is happening in the world is a distraction, but it’s business as usual for us,� Greenslade said.


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