Shaun Drummond and Joyce Moullakis
Non-bank lender Pepper Group said on Thursday talk it is planning a sharemarket listing is premature, but a float may occur when the company has enough lending growth from a host of acquisitions.
Co-chief executives Patrick Tuttle and Michael Culhane have been rapidly growing the business around the world. On Wednesday, they returned from Hong Kong where they took a minority stake in the purchase of Standard Chartered’s PrimeCredit consumer lending business and Shenzhen PrimeCredit unit alongside state-owned enterprise China Travel Financial Holdings and United States based York Capital Management Financial Advisers.
The price paid by the consortium is rumoured to be up to $US600 million ($736 million), but Pepper wouldn’t reveal what it is paying.
The consortium will focus the portfolio on personal lending and sell off the $HK5.9 billion ($1 billion) mortgage book to Bank o f East Asia.
Pepper’s growth puts it on bankers’ watch lists for a future float.
Mr Tuttle and Mr Culhane told The Australian Financial Review talk of a float was premature but it may happen in the future.
“We’d like [our] businesses to be lending with a reasonable amount of scale first,” said Mr Culhane, who founded Pepper in 2001.
But Mr Tuttle said at some point the scale of growth and acquisitions they will be targeting will be out of reach for a private company.
“It is quite difficult for a private company to keep up – if we get too large at some point we would have to raise capital.” Listing would provide other sources of funds and reduce their cost of capital.
Pepper is in a joint bid with Macquarie Group and The Carlyle Group for GE Capital’s $7 billion Australian consumer finance division. Indicative bids were lobbed last week and a decision on the sale is likely before the end of the first quarter of next year.
Pepper has proven an active acquirer in the past two years, but in 2013 failed to buy RHG, formerly RAMS Home Loans, after a fierce bidding contest.
In terms of this week’s transaction, it is unusual for Pepper to take a minority holding.
But as well as buying the biggest consumer financier in Hong Kong, the deal gives Pepper its first toehold in the nascent personal lending market in mainland China due to Prime’s small Shenzhen arm.
“We don’t see ourselves betting the company on a China strategy. It is a sizeable investment, but not compared to the overall size of the company. However, it is very strategic,” Mr Tuttle said. Mr Culhane outlined big opportunities in China for growth in personal loans and credit cards as people there craved more products.
“You are going to see this urbanisation of the Chinese economy – they are going to want to gain access to credit.”
Mr Tuttle said the “explosion” in online buying, in part driven by giant e-commerce site Alibaba and their PayPal equivalent Alipay, created an opportunity to sell credit online in China. Standard Chartered had not been growing the Schenzhen business much and it now had a loan book of about $US60 million and 120 staff.
Pepper also bought a South Korean mutual bank in 2013 and has looked at options in Thailand, Indonesia and Vietnam.
But for now they say that is it for Asia purchases. Elsewhere, Pepper is looking at opportunities to buy loan books in Italy as regulation pushes banks there to get out of higher risk, “non-conforming” or sub-prime loans, that are a major focus for Pepper.
Mr Culhane said there was an opportunity for growth in those type of loans globally. In the UK, for instance, before the financial crisis in 2007, non-conforming loans – often the preferred option for the self employed – amounted to about £100 billion ($191.5 million). In 2013, he said they were down to £2 billion. The lender will also soon shift from loan servicing to lending in Ireland and Britain.
In Spain it is targeting “point of sale” loans where people cannot afford to buy an item outright.
