Australian non-bank lender Merricks Capital says it has completed a $140 million refinancing of dairy farming enterprise Van Leeuwen Group, signalling its launch into the New Zealand market just as the Reserve Bank is set to announce tougher new rules on banks' capital requirements.
The dairy business - owned by Aad and Wilma van Leeuwen - comprises over 7500 hectares of land.
The group currently milks over 10,000 cows across 11 dairy farms, producing about 5 million kg of milk solids per annum. Van Leeuwen Group was an early adopter of robotic milking systems.
A South Canterbury farm owned by the group was one of the first to be identified as having the cattle disease Mycoplasma bovis, which resulted in a nationwide animal cull in an attempt, still ongoing, to wipe it out.
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Merricks is a Melbourne-based funds manager and financier, backed by the wealthy Liberman family.
Chief executive Adrian Redlich said the Van Leeuwen deal had been worked on for a year and release of its detail today on the same day as the bank's review was a coincidence.
Nevertheless, he said this kind of deal would become more prevalent as banks became more reluctant to lend to the rural sector as capital requirements tighten.
Independent economist Cameron Bagrie said the deal was more likely to be about the nature of the risk rather than the Reserve Bank's new capital requirements.
"Good deals will still get done. The reason that this deal has been done I suspect has nothing to do with the Reserve Bank's capital proposals," he said.
"It's got everything to do with the risk and the nature of the entity," Bagrie said.
One of Van Leeuwen's South Canterbury properties was one of the first farms to test positive for M. bovis in 2016.
Redlich said Merricks did not see the outbreak as "Armageddon" and that the company was familiar with it in the other countries where it lends.
"All agriculture deals with [natural events] and natural disasters in one form or another," he said.
Merricks represents North American pension funds, Japanese and Korean financial service companies, and high net worth individuals in Australia and New Zealand who tended to take a different perspective to the banks, Redlich said.
"We look at it from an underlying asset value as a whole while the banks have moved to much more of a cash flow focus," Redlich said.
Broadly, Redlich said the banking system in New Zealand was changing at a time when there was a real need for capital.
"The New Zealand lending market is undergoing a fundamental shift, which presents opportunities for both borrowers and investors as large, incumbent banks are forced out of the market, he said.
"The banks continue to struggle to balance the cyclical patterns of agriculture with their own asset and income-based lending criteria but it's the Reserve Bank of New Zealand's proposal to raise banks' capital ratio to 16 per cent which will be most damaging for the agriculture industry, with traditional borrowing costs expected to increase," he said.
Merricks chief operating officer, Andrew Torrington, said the company's entry into New Zealand presented an opportunity for NZ businesses.
"We are here to fill the void left by banks to ensure that the New Zealand market has access to the capital it needs to thrive," he said.
The Reserve Bank, in last month's Financial Stability Statement, said a significant share of the dairy sector remained financially vulnerable.
"Progress has been made by some borrowers in reducing debt and restoring balance sheet sustainability but the most indebted farms have struggled to achieve profitability and repay debt," it said.
"A significant share of dairy loans are still being closely monitored by banks, and the share of loans that are non-performing has increased."
The Reserve Bank's announcement on capital requirements is due at midday.