Judo Bank’s small business rescue plan questioned

Judo Bank’s Joseph Healy. Picture: Britta Campion

Judo Bank has called for a special purpose equity vehicle to replace small business debt but some in the market are questioning the need, given low market interest rates.

As reported in The Australian, Judo’s Joseph Healy has suggested a government-backed special purpose vehicle which would house COVID-19-related small business debt.

The debt would be converted to equity repayable in say five years, with an eight per cent coupon rate, so a $100,000 loan would be equity totalling $140,000.

That way the small business would be free of debt and able to build up the operation to be able to repay the convertible equity in five years’ time.

The concern is that otherwise, the business would be overloaded with debt and unable to do anything.

Mr Healy said the special purpose vehicle would ideally be owned jointly by the government and the banks.

Analysts contacted by The Australian support the concerns but say given low interest rates, the debt build-up is relatively small.

They also question whether any small business would really want to have the government as an equity holder.

Westpac and other banks have in the past steered clear of government proposals to turn them into equity holders when their primary business is debt.

But Mr Healy’s concerns underline the issues ahead of the government, as coronavirus support measure are due to expire at the end of September.