The sales process for Westpac’s $11 billion auto loan portfolio could involve a break-up of the business, where parts are sold to various bidders, say sources.
It is understood that discussions between Westpac’s advisers and potential suitors have begun, but more in the context of offering up any parts they may find of interest.
Apparently, the separation of the vehicle loans division from Westpac has yet to be completed.
It has involved creating a new IT system to manage a fixed commission environment surrounding law changes for car loans aimed at curbing hefty interest payments for consumers.
The different parts are also yet to be fully integrated.
As earlier reported, New York-based alternative investment firm Cerberus Capital Management is understood to be moving forward with plans to compete for at least parts of Westpac’s $11bn auto loan portfolio. The other party that is expected to be involved is The Carlyle Group, given that it has been an interested buyer in the past.
Market analysts estimate that a buyer would need to pay about $2bn for the assets on offer.
Working on the sale has been investment bank Morgan Stanley, which has been asking possible buyers to sign nondisclosure documents in recent weeks related to the sale.
Last year, Cerberus bought Westpac’s Vendor Finance business through its company Angle Finance, securing control of a loan portfolio worth about $500 million.
It also looked at ANZ’s UDC finance business in New Zealand.
Other private equity funds likely to take a look include Kohlberg Kravis Roberts, TPG Capital, Bain Capital, BGH Capital, Brookfield and JC Flowers.
The portfolio largely consists of three separate parts — dealer finance and loans from Bankwest and AGC portfolios purchased over time by Westpac.
The entire division writes about $5bn of new loans annually.
The lingering question for prospective buyers is the level of profitability under new ownership, given that Westpac has a low cost of capital at about 4 or 5 per cent, which may make turning a profit difficult for a buyer at that rate.
Buyers are being approached about the portfolio after a strong improvement in car sales has fuelled lending in the sector, with automotive lending up 24 per cent in the past three months of last year compared to the previous three months.
The operation sits within Westpac’s recently formed Specialist Businesses unit overseen by Jason Yetton.
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