KKR Credit Advisors has made a A$650 million ($493 million; €433 million) bid for non-bank lender Pepper Group in Australia, according to a filing.
The statement reveals a non-binding proposal of A$3.60 a share from KKR, with permission for directors to declare a dividend of up to A$0.03 per share. The company has granted KKR exclusive rights to undertake due diligence, according to the filing.
Local news sources reported that KKR is in advanced talks to buy the company but the official release stressed that the negotiations are incomplete and subject to uncertainties.
The transaction is likely to be funded using mezzanine debt and other products from KKR’s arsenal, led by Stuart Blieschke, director at KKR Credit, according to Australian Financial Review.
Neither KKR nor Pepper Group could be immediately reached.
Pepper Group provides lending, advisory and asset servicing across the residential and commercial property sectors, as well as in consumer, auto and equipment finance. The company is listed on the Australian Securities Exchange with over A$50.8 billion in assets under management as at 31 March 2017. This is comprised of A$7.7 billion in lending assets and a servicing portfolio of A$43.1 billion.
The deal would represent another significant expansion for KKR into the mortgage market in Australia after it purchased GE Capital’s Australian and New Zealand consumer lending arm for A$8.2 billion in a consortium with Varde Partners and Deutsche Bank in 2015.
The former GE lending arm has now been rebranded as Latitude Financial Services. It offers a similar suite of low-document home lending and credit cards as Pepper.
There is a growing void in the real estate lending sector to be filled by non-bank lenders with banks slowly retreating. In February this year, the Australian Prudential Regulation Authority said banks should be “under no illusion” that it will intervene if limits on real estate lending growth are breached.
MaxCap Group, the Australian commercial real estate (CRE) debt investment manager, has also spotted the opportunity and brought its First Mortgage Fund to the market last year.