Blackstone’s La Trobe Financial tests sale options, joins non-banks mulling IPOs
Blackstone-backed La Trobe to conduct a strategic review of its $12bn lending business, including looking at potential sale or IPO.
Blackstone-backed La Trobe Financial has Goldman Sachs spearheading a review of its $12bn lending business, including a $2bn-plus potential sale or ASX listing, as it joins the ranks of non-bank lenders assessing strategic options.
The review is understood to be in response to inbound interest and will test whether to conduct a full or partial trade sale, initial public offering or retain the company and its current growth strategy. The inbound interest came from a mix of industry and private equity players, sparking La Trobe’s owners to start a process to weigh up real interest and how it may facilitate the firm’s growth.
Sources said non-binding offers would be due in June as part of the strategic review. The Australian revealed La Trobe’s plans online on Wednesday.
Private equity and real estate behemoth Blackstone owns 80 per cent of La Trobe and the non-bank lender has a loan book of $12bn, which is up markedly from $3.2bn since 2017. Blackstone’s growth plans for La Trobe had centred on doubling the loan book in three years, which it exceeded, and growing the portfolio to more than $25bn over a decade.
La Trobe’s board counts banking stalwarts John Marriott and Bob Edgar as chairman and deputy chairman respectively, with Blackstone’s Chris Tynan also a non-executive director.
Blackstone acquired an 80 per cent stake in La Trobe in late 2017 with chief executive Greg O’Neill — whose father Ray O’Neill started the company in 1952 — retaining a 20 per cent stake in the business as part of the deal.
Blackstone’s strategic review comes amid low funding costs and bumper demand for mortgages domestically, as borrowers take advantage of record low interest rates and first-home buyer incentives.
The firm’s decision to weigh up strategic options also comes at a busy time in the non-bank lending sector, as several players seek to join public markets. Liberty Financial conducted an IPO last year and on Tuesday Latitude Financial joined the ASX.
Pepper Australia, Grow Finance and Columbus Capital, which is rebranding ColCap, are among other players mulling an ASX listing this year. Private equity firm KKR & Co, which owns Pepper, is conducting meetings with investors this week via a management roadshow for its proposed IPO.
La Trobe expects profits next financial year to print at $145m, up from an expected $120m-$123m for the year to June 30. Non-bank lenders tend to be valued at between 7.9 times and up to 14.4 times annual profit, Pepper’s IPO research said on Wednesday.
Given La Trobe also has an asset management arm, which contributes almost half of its earnings and generates monthly capital inflows, it may warrant an even higher multiple, taking the potential valuation of the business to more than $2bn.
However, the company is the subject of civil legal action by the corporate regulator against the responsible entity of the La Trobe Australian Credit Fund.
The Australian Securities & Investments Commission is alleging La Trobe’s historic marketing for the fund was “misleading or deceptive”, and the matter is before the courts.
The credit fund — which houses $5.6bn — provides La Trobe with annuity income and is also part of the group’s funding sources.
Financial services companies typically provide indemnities during potential sale processes to cover any regulatory fines or litigation.
After Latitude’s IPO on Tuesday, several fund managers expressed caution on the non-bank lending sector, given funding costs were expected to rise as the economic recovery from COVID-19 accelerated.
La Trobe would probably argue it has diversified funding sources, including its credit fund, and can securitise parcels of loans to sell to investors.
Those with interest in La Trobe would also be keen to see how its loans in hardship are tracking and if they mirror an overall sharp decline across the mortgage sector, given repayment deferral periods have ended and Australia has fared relatively well in emerging from the pandemic.
Separately from its La Trobe investment, Blackstone has had many irons in the fire in the local market this year.
This week, it agreed to sell a portfolio of warehouses to Hong Kong-based property company ESR for $3.8bn, in a move expected to reset values across the country and highlighting the power of the e-commerce boom.
Blackstone in March lobbed a $8bn takeover offer for James Packer-backed Crown Resorts, timed ahead of the start of royal commissions into the embattled casino group in Victoria and Western Australia.
La Trobe has offices spanning Melbourne, Sydney, Shanghai and Hong Kong. If the company attracts an offshore buyer, any transaction would require the approval of the Foreign Investment Review Board.
Japan’s Shinsei Bank agreed to purchase a 10 per cent stake in Latitude ahead of its ASX debut, a portion of which is subject to FIRB approval.
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