HGH - Heartland Group Holdings

[peat]

Hope the pronunciation remains correct and does not go the way of FANGARAY.

its Maori Language week mate how can you say this!!?

It is correctly pronounced Fungarei , but Whanganui stays the way it was always pronounced. No F sound just Wonganui - Maori in this region dont pronounce the H
Yes its not easy keeping up huh

Back to Heartland I have a few under a CFD, but not in my name as yet. I am quite disappointed with it technically. Been going down for the last 9 months - i cant see any compelling reason to own it at present so may ditch the few I have.

[janner]

its Maori Language week mate how can you say this!!?

It is correctly pronounced Fungarei , but Whanganui stays the way it was always pronounced. No F sound just Wonganui - Maori in this region dont pronounce the H
Yes its not easy keeping u
p huh
Back to Heartland I have a few under a CFD, but not in my name as yet. I am quite disappointed with it technically. Been going down for the last 9 months - i cant see any compelling reason to own it at present so may ditch the few I have.

A position I find myself in.. However having been in from ground zero.. The returns have been excellent..
Will hang in there for the time being..

Maori Language week. " Yes its not easy keeping up huh. "

I can only refer you to...... But that is off topic.

[Snoopy]

When the restructure was first announced I was a bit disappointed HBL would not have to answer fully to The Reserve Bank of NZ.Thought that gave shareholders extra protection.I then came around to thinking OK I can see we still be able to analyse their full accounts. HBL have earnt my respect as they have always been honest with their objectives,and I have been very pleasantly surprised they do as they say they will do.
HBL have really made their REL business work.They see continuing huge growth in Australia. It is a very profitable low risk secure sector. Repeat "very profitable low risk secure sector."

I agree with what Percy has written above. The ability to fully monitor shareholders' potential downfall with fully audited accounts will certainly be painted up in lights for everyone to see.

Yet I think Percy skirts the main risk issue which is actually cashflow. It is possible to have a highly profitable business unit that nevertheless cannot pay its bills in cash. Heartland does not have the money to fork out large Reverse Mortgage cash sums with no cashflow coming back for many years. They are looking to fix the cashflow problems by borrowing large amounts of money on the wholesale bond market in Australia. And this creates the risk that if the wholesale bond market tightens up, not only will Heartland's REL business not be able to grow. It means that Heartland will not have the money to pay the interest on the bonds they have created already. How likely is this to happen in reality? I would say that the chances are low. So if the chances are low, why worry about it? Because if it does happen the downstream damage will be severe!

The only realistic way out of such a potential pickle that I can see is that new parent 'Heartland Holdings' would have to sell all or part of Heartland Bank based in New Zealand. That could leave today's "Heartland Bank' shareholders with only a distressed REL portfolio in Australia. The question is, as a Heartland shareholder today, are you prepared to entertain that low risk with high consequences? The best way to avoid such a risk is to stick with the current structure.

To take advantage of this growth they have to restructure their structure.

No they don't. They can still grow the Australian REL business by 100% (measured by the size of the loan book) under the existing structure.

SNOOPY

[percy]

70% of RELs are repaid early.
Snoopy says HBL can grow REL business in Australia 100% under existing structure.
HBL say they need new structure to grow the Australian REL business.
Difficult choice,believing Snoopy, or HBL board and management,who actually have shares [ a lot] in the business,and know the business better than anyone.
Tough decision..? ,,,lol.

[BlackPeter]

70% of RELs are repaid early.
Snoopy says HBL can grow REL business in Australia 100% under existing structure.
HBL say they need new structure to grow the Australian REL business.
Difficult choice,believing Snoopy, or HBL board and management,who actually have shares [ a lot] in the business,and know the business better than anyone.
Tough decision..? ,,,lol.

Actually - I do think that Snoopy is pointing out a very real risk worthwhile considering ... and even good directors have no 20/20 foresight of what the future might bring. As well - ask CBL shareholders whether large director shareholdings are a useful indicator. On the other hand - they will tell you as well that while RBNZ oversight may or may not add value to some stakeholder interests - its value for shareholders is quite negative.

Anyway - the proposed changes are likely to improve HBL's earning capabilities if things go well - and it will increase the risks for the shareholders if things don't go well.

Classical investors decision - higher (potential) rewards vs higher risks. Everybody needs to decide for themselves which model fits better to their investment profile.

Discl: Don't hold at present and not really sure how I would vote ...

[iceman]

I agree BP that Snoopy has pointed out a real risk with the cashflow intensity of the REL business. No doubt about that. That's why I've just voted online for the proposed restructure to allow the Directors to seek more avenues for funding the big REL growth ahead. Yes it is a classic risk reward scenario that investors have to weigh up. I'm all for it.

[Beagle]

For me the decoupling from RBNZ oversight is something of a worry and gives me echo's from finance company days but this is not finance company lending.
Reverse equity lending margins are FAT and growth is very high and the risk with this sort of lending is very, very low.

[Enjay]

They can still grow the Australian REL business by 100% (measured by the size of the loan book) under the existing structure.

I wonder if this understates the opportunities for HBL in Aussie.

From the Scheme Booklet, HBL reckons the Aussie reverse mortgage business hits 35% annual growth.

On page 6, HBL notes that RBNZ limits wholesale funding to 20% and overall Aussie assets not to exceed 33% of the assets.

Absolutely, based on the HBL's current size, the reverse mortgage business has 100% growth. Assuming continued 35% growth, HBL's going to hit that upper limit within a couple more years.

Growth may be bigger if HBL can also increase its access to wholesale funding by restructuring away from the 20% wholesale funding limit.

Thoughts?

[BlackPeter]

For me the decoupling from RBNZ oversight is something of a worry and gives me echo's from finance company days but this is not finance company lending.
Reverse equity lending margins are FAT and growth is very high and the risk with this sort of lending is very, very low.

I guess I am still a bit struggling to quantify the risks.

Anybody has seen one of these REL contracts? If they cap the interest rate - or worse - fix a long term interest rate than it would be not too difficult to picture a scenario where anybody giving out these REL loans is receiving significantly less interest than they are paying to fund the capital.

Just one example .... imagine Trump crushes the Chinese economy and China does not need anymore Australian resources (coal, IO, other ores). Australia'n economy turns Argentina ... and interest rates approach 100% (give or take) annually. How safe would be a finance company holding long term (life can be long) REL loans capped at 8%?

And even if interest rates are not capped - how long at 100% interest that the principle is higher than the mortgage?

Not saying this is happening, but as said - life can be a long time, the future is impossible to predict and the risks are real.

[Snow Leopard]

...The only realistic way out of such a potential pickle that I can see is that new parent 'Heartland Holdings' would have to sell all or part of Heartland Bank based in New Zealand...

2/ Sell Heartland REL Oz
3/ Put Heartland REL Oz into liquidation

I voted against the restructure, but I only owe a few HBL shares these days.