Judo ramps up 2021 IPO plans; hires Goldman Sachs

Challenger bank Judo is preparing a $1.5bn-plus ASX listing in 2021’s latter half, hinging on prevailing market conditions.

Judo Bank's David Hornery and Joseph Healy. Picture: Elke Meitzel

Challenger bank Judo is preparing a $1.5bn-plus ASX listing in 2021’s latter half, hinging on prevailing market conditions and navigating the COVID-19 fallout.

The Australian understands Judo has appointed Goldman Sachs to work on a potential float next year, after fielding approaches from a handful of investment banks.

A Judo spokesman wasn’t immediately able to comment.

Ahead of next year’s mooted initial public offering, Judo is currently conducting its fourth funding round seeking $200m to $300m from investors. That capital raising - if successful - would give the bank a valuation of more than $1.5bn, and comes after a third funding round ruled off in May elevated it to unicorn status.

Judo - which focuses on small and medium businesses - has a loan book of about $2.5bn and a medium-term target of hitting more than $10bn.

But potential investors in an ASX listing will closely monitor how Judo manages loans that are coming off repayment pauses due to the pandemic. The favourable capital treatment from the banking regulator for loan repayment deferrals is due to expire at the end of March.

Less than 10 per cent of Judo’s loans are on repayment pauses.

Sources said if ASX market conditions were favourable and COVID-19 loan losses printed within expectations, Judo would push the button on a float and aim to join the bourse in the second half of calendar 2021.

Across the banking sector, $179bn loans were on temporary repayment pauses as at September 30, reflecting about 6.7 per cent of the total domestic loan pool. Housing loans make up the majority of total loans granted repayment deferrals, but small and medium business loans have a higher incidence of repayment deferral at 10.8 per cent of the business loan pool, versus 7.4 per cent of all housing loans.

Banks are, though, benefiting from a surge in deposits during the COVID-19 crisis and cheap funding from the central bank’s Term Funding Facility. In April, the Australian Office of Financial Management identified a Judo warehouse loan funding facility as the first approved investment of the Australian Business Securitisation Fund.

But Judo co-founder Joseph Healy, a former head of National Australia Bank’s business bank, last month said the current environment was very subdued. Overall, though, he was optimistic on Australia’s economic prospects and expected the federal budget would facilitate the opportunity for a “significant bounce-back” in the second half of next year.

Mr Healy and former NAB colleague David Hornery are Judo’s joint chief executives and are likely in line for a big payday should the bank’s float proceed in 2021. Judo’s board is chaired by former Treasury secretary and AMP director John Fraser.

At AMP, Mr Fraser was among the board casualties alongside David Murray from the company’s sexual harassment scandals earlier this year.

Judo obtained its banking licence in April 2019 and has been one of few start-up banks in this market to grow at a rapid clip. It now has 250 staff in four offices in Melbourne, Sydney, Brisbane and Perth, and is launching in Adelaide this month.

Private and institutional investors that have participated in Judo’s funding rounds have included Bain Capital Credit, Myer family Investments, the Abu Dhabi Capital Group, Ironbridge, SPF Investment Management, OPTrust, and Tikehau Capital.

Judo’s latest accounts show it posted a $50.4m net loss for the 12 months ended June 30, larger than a loss of $27.5m in the prior financial year as it booked provisions for COVID-19 loan losses. Interest income surged to $52.3m last financial year, from $5.8 in 2018-19.

Sources said the bank was now profitable as it was one of few lenders able to continue to grow its loan volumes through COVID, albeit off a low base.

Prior to the latest funding round, Judo completed a $230m third round against the backdrop of the pandemic, taking the total raised to more than $750m.

In March, Judo sealed a new $350m three-year debt facility from Citigroup. At the time, it added to other deposits and other funding facilities from banks including Credit Suisse and Bendigo and Adelaide Bank, while it had repaid a facility with Goldman Sachs.

Judo has a relationship banking model.