Regional non-bank lender Southern Finance has frozen investors' access to funds while it pushes ahead with a sale of the business to Bendigo and Adelaide Bank.
The sudden sale of Southern, which is based in Warnambool in eastern Victoria, comes on the heels of the collapse last month of another non-bank lender Banksia Group, putting in doubt up to $660 million of investor funds.
For its part Southern has $290 million worth of investor funds on deposit which it uses to fund its lending book. It specialises in equipment finance and commercial property loans while the group also has a financial planning business.
Bendigo confirmed yesterday it had entered into a non-binding heads of agreement to acquire Southern Finance’s assets for an undisclosed amount.‘‘We have carefully considered all options and believe the time is right to pursue the proposed transaction with Bendigo and Adelaide Bank,’’ Southern’s chief executive Ashley King said.
Southern said it was working with Bendigo and Adelaide Bank with the aim of having a binding agreement finalised by December 3.
However Southern said it was forced to freeze investors funds to allow the negotiations for the sale to move ahead. The decision to freeze redemptions was to ensure ‘‘fair and equal treatment of all investors’’ in Southern Notes.
Southern raises funds from investors and then on-lends these funds for construction and business lending.
Southern’s Mr King said he expects that access to funds on Southern Notes will recommence after the suspension period ends and ‘‘providing that Southern and Bendigo and Adelaide Bank successfully conclude the proposed transaction’’.
The talks come as the Australian Securities and Investments Commission has set up a taskforce to regulate the debenture industry in the wake of the Banksia collapse.
The move by Bendigo comes amid growing concern of that business lending losses could start to move higher in certain sectors including agriculture and construction.
‘‘We remain cautious of business lending exposures following an uptick in business write-offs and concurrent increases in impaired (assets),’’ said brokerage Credit Suisse in a note to clients.