GE ploughs on in wake of UDC upheaval

By Deborah Hill Cone

Friday 23rd July 2004

GE Commercial Finance last year bought AMP's property loan book for $426 million in cash, although its most recent accounts show its total assets were $100 million short of that figure.

The company is part of industrial giant GE, which releases only consolidated accounts, but figures filed with the Companies Office last month show GE Commercial Finance's New Zealand operation had total assets of $326 million at December 31.

In a note to the accounts it highlights its June 2003 acquisition of AMP's commercial real estate loan book for $426 million.

GE Commercial Finance's Australian and New Zealand managing director, Richard Bailey, said the drop was due to loans being paid back and the publicly available accounts not showing the whole picture.

GE's legal entities differed from those it used for statutory reporting.

Those accounts show GE Commercial Finance made an after-tax profit of $7.4 million in nine months to December last year, on income of $25.6 million.

The GE subsidiary has been a relatively recent player to the New Zealand finance scene, growing mostly by acquisition. In 2002 it bought AGC and last year it bought AMP's real estate book. Other recent purchases include ALC, the Victoria-based finance company Bailey started.

The AMP deal has seen the company expand into property finance, setting up a new division focusing on funding single-tenant properties, such as backing business owners to buy their own premises.

"Our response is positive but it's too early to say. It's not substantial but I think it can be."

It has also set up corporate lending operation lends against inventory and debtors, rather than against equipment, to provide working capital.

Bailey said although the New Zealand market was small, it had a reasonable mass of medium-sized companies in the sectors GE Commercial targeted, such as logging, forestry and construction. "The important thing is we're not a bank."

He said as an industrial company GE was more aligned to the companies it serviced. "We understand the issues they are going to have. It gives us an edge. Banks are not equipment-focused as an edge."

Unlike most New Zealand finance companies, GE does not issue commercial paper in this country to fund its operation. "We have the balance sheet to be able to fund directly ... which provides a bit more flexibility."

GE's major competitor, ANZ National Bank-owned UDC, is going through an upheaval as it scraps its franchisee system but Bailey said GE used only its own sales force.

"We can approve transactions here. Typically our approach has been to be a direct player rather than through intermediaries."

He said 70-80% of lending decisions were made locally.

GE's approach was to focus on growth with a strategy of offering finance not only to fund equipment and capital expenditure but also for "event financing" such as mergers and acquisitions, the smoothing of cashflows and dealing with succession planning issues.

"We're a growth company ... GE tries to be number one or two in any market it participates in," Bailey said.

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