ANZ agrees to sell UDC business in New Zealand to Shinsei Bank

ANZ has agreed to offload its UDC business in New Zealand to Shinsei Bank for $705m, after an earlier sale bid was blocked.

ANZ says the sale of UDC is part of a strategy to “simplify” its business. Picture: AAP

ANZ has agreed to offload its UDC asset finance business in New Zealand to Shinsei Bank for $NZ762m ($705.5m), its second attempt to divest the division after a regulators blocked a sale two years ago.

In a statement on Tuesday, ANZ said the transaction was aligned with a strategy “to simplify its business”, but that the sale remained subject to regulatory approval. Deal completion is expected in the second half of the 2020 calendar year.

Under ANZ chief executive Shayne Elliott the bank has undertaken a string of asset sales including in Asia and domestically, where it has divested its wealth management and life insurance operations.

Selling UDC, though, has not proven easy. Two years ago, ANZ abandoned an agreed divestment of UDC to China’s HNA Group, after New Zealand’s foreign investment regulator raised concerns about the buyer’s structure.

New Zealand’s Overseas Investment Office blocked ANZ’s UDC sale after HNA failed to provide clear information about its ownership and control interests.

The new acquirer, Japan’s Shinsei Bank, is a diversified group with both banking and non-banking business divisions. It operates asset financing and vehicle and consumer lending businesses within Japan and offshore.

ANZ said the UDC purchase price represented a price-to-book ratio of 1.2 times net tangible assets of $NZ637m as at March 31. UDC had net loans and advances of $NZ3.4bn as at March 31 and an interim net profit of $NZ24.5m.

The bank’s statement said the transaction would release more than $NZ2bn of funding provided by ANZ New Zealand.

After gaining in early ASX trading, ANZ’s shares closed 0.2 per cent lower at $18.02 on Tuesday.

The sale will provide about $439m, or 10 basis points, of level 2 group common equity tier one capital at settlement. The statement also said the UDC transaction would deliver ANZ a net gain on the sale of $75m, but a net loss of $52m after the release of goodwill is taken into account.

“The sale would be good for their capital position which is critical going forward for the recommencement of dividends,” said Switzer Asset Management portfolio manager Shawn Burns.

ANZ was among banks that deferred making a decision on their first-half dividend due to the COVID-19 turmoil and a directive from the banking regulator.

Bell Potter analyst TS Lim said at a price-to-earnings ratio of almost 12 times the price generated by the UDC sale was “not bad”.

ANZ’s proforma common equity tier-one ratio, or core capital, was at 11 per cent as at March 31. That includes a capital note conversion and the UDC divestment, and is above the banking regulator’s “unquestionably strong” threshold.

ANZ has set aside $1bn for COVID-19 related losses and the major banks have made total combined provisions for the pandemic of $5bn. That is expected to balloon over the next three years.

But Bell Potter’s Mr Lim believes there is scope - if credit quality fares better than anticipated - for “some provision write-backs” once the pandemic is over.

“Post-GFC data indicates write-back rates of at least 15-20 per cent for the majors.”

Vote of confidence

ANZ’s New Zealand boss Antonia Watson said Shinsei Bank’s purchase of UDC was a vote of confidence in the New Zealand economy.

“With a strong outlook for infrastructure and agriculture projects as the New Zealand economy rebuilds post-COVID-19, there is a significant role for UDC... As such, it needs an owner that can invest in and grow the business,” she added.

“Shinsei Bank intends to preserve UDC’s operations, retain UDC employees and provide long term capital to maintain and grow customer lending.”

Shinsei Bank CEO Hideyuki Kudo said the acquisition of UDC was in line with the group’s non-organic growth strategy in asset finance.

“In the COVID-19 ‘New Normal’, we are confident that UDC, as part of Shinsei Bank Group, will continue to grow and contribute to the development of the New Zealand economy and help people and businesses in New Zealand with their financial needs,” he added.

“Based on UDC’s long successful history, solid business base and efficient sales structure, UDC will be a major asset for the Shinsei Bank Group.”

DataRoom first reported in December that ANZ had relaunched the UDC sale process.