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Finance company eyes share buyback

Board believes offer to “dry shareholders” will be to the benefit of all those with an interest in the business.
Posted on 22 July, 2021
Finance company eyes share buyback

MTF Finance is planning an ordinary share buyback from nearly one-quarter of its shareholders in an effort to help upgrade its IT systems and deliver future growth.

The company sent out a disclosure document on July 20 detailing the board’s intention to make an offer to acquire shares from dry shareholders, those who no longer originate finance receivables with MTF Finance under an originator agreement and who have a ledger balance less than $200,000.

The decision follows the acquisition of the company’s shares from Turners Finance in June 2021.

“As non-transacting originators, dry shareholders no longer contribute to the growth of the business or generate returns for MTF Finance shareholders,” the company says in an update to the NZX. 

“They have contributed capital which MTF Finance is able to utilise, however this comes at a higher cost to the company. 

“The board of the company wishes to address the potential inequity whereby a large group of shareholders – 24.2 per cent – in a company with a co-operative business model has ceased contributing as originating shareholders and do not intend to recommence origination in the future.”

A desire to align ordinary shareholder interests with those of originators, to the benefit of all parties, has prompted the board to take action.

The board believes its buyback offer is “to the benefit of all shareholders and the consideration offered is fair and reasonable”.

The offer is capped at $5 million or 2,164,502 shares and will be made no earlier than August 4, 2021. 

“There are three primary drivers for this offer,” the company explains. “One, the board is looking to rebalance MTF Finance’s equity structure to better align the interest of shareholders and originators.

“Two, the company has improved its balance sheet leverage through securitisation warehouse funding and now holds excess capital.

“Three, the board have recognised legacy technology debt needs to be addressed in the business and a major generational upgrade of IT systems is now needed. This required spend is likely to have a material effect on dividends in the next two to three years, thus the offer to dry shareholders is an opportunity for exit prior to any imminent reduction of dividend/s.”