Pepper Group hires Goldman, Macquarie to manage $1bn float

Mortgage lender Pepper Group has hired Goldman Sachs and Macquarie as joint lead managers for a potential float worth $1 billion.

Housing finance commitments

Mortgage lender Pepper Group has taken a step further with its listing plans after hiring Goldman Sachs and Macquarie as joint lead managers for a potential float valuing the company at $1 billion.

The initial public offering, which has been on the cards since last year as part of the company’s quest to gain access to more capital, is slated for the second half of the year, depending on market conditions.

The non-bank lender earlier appointed Highbury Partnership as its strategic adviser to help with the float plan. Pepper is a specialty mortgage lender, third-party loan servicer and an asset manager, with businesses primarily in Britain and Australia.

The company has been somewhat of a rising star in the finance industry, increasingly competing with heavyweights for acquisitions of major loan portfolios.

Last year, Pepper, along with a Chinese group, acquired the Hong Kong-based consumer finance business of Standard Chartered in a deal estimated to be worth about $US600 million.

It also teamed up with Macquarie Group to bid for GE Capital’s Australian consumer finance business.

However, the grouping was outbid by a consortium of KKR, Deutsche Bank and Varde Partners, which last week clinched the $8.2 billion deal.

The listing will be a test for pure play non-bank lenders, which have a mixed record on listed ­markets.

Notably, RAMS Home Loans imploded in late 2007 as mortgage securities markets started to freeze over.

Even so, the recent listing of mortgage insurer Genworth has been seen as paving the way for a return to the market by non-bank financiers.

Pepper will be seen as giving investors an alternative way to ride Australia’s housing boom at a time when major bank stocks are increasingly viewed as expensive.

Run by Mike Culhane and Patrick Tuttle, Pepper has operations spread across Europe, Asia and Australia and generates earnings from loans, particularly offshore, and fees from servicing portfolios of third-party commercial and residential loan portfolios.

The Pepper Group holds about $28.6bn of loan and lease assets under management worldwide — with about $4.9bn of this in Australia.

Pepper reported annual revenue of $329.9m in 2013, the last year for which financial statements are available.

While revenue was barely changed from the previous year, its profit rose to $28.8m from $24.6m in the previous year.

The group had borrowings of $3.4bn on its books at the end of 2013, mostly in the form of short-term debt.

The company’s current share capital comprises 27,476 A-Class shares worth $2m and 181,766 ordinary shares worth $38.18m.

It has several private equity and venture funds among its shareholders.

The company has been looking for growth capital as it attempts to beef up in a booming lending market in Australia and overseas.

While the country’s big four banks have dominated the mortgage and consumer lending space over the past few years, smaller non-bank lenders such as Pepper expect opportunities to open up after the recent financial systems inquiry recommended tighter capital requirements for the bigger banks.