Non-bank inks $100m lending deal with banking giant

In a trading update late on Friday, Pepper announced that it has entered into an agreement with Madrid-based Banco Popular to create a 50-50 joint venture in the Spanish unsecured consumer finance market.

The deal will see Pepper Group and Banco Popular form an alliance to pursue new international business opportunities in Europe, Asia and the Americas focusing on consumer finance.

Banco Popular is the sixth largest banking group in Spain, with total assets of €160 billion ($235 billion) and 4.8 million clients in 17 countries.

As part of the agreement, the Spanish lender will provide a committed, five-year, $100 million equity funding facility to support future growth. In a statement, Pepper said the JV will create the fifth largest provider in the Spanish Point-of-Sale (“PoS”) finance market and will have access to Banco Popular’s extensive customer base.

“The JV will be owned 50 per cent by Popular and 50 per cent by Pepper Group and will combine each partner’s respective unsecured consumer finance companies in Spain,” Pepper said in an ASX statement.

“The combined business will have a total loan book outstanding of approximately $404 million as of 31 December 2015, making it the fifth largest player in the Spanish PoS finance market and will have access to Banco Popular’s extensive customer base.”

The JV will be formed by Pepper selling its Spanish business to a Popular subsidiary following which Pepper Group will be issued with 50 per cent of the shares in the combined business.

“This series of transactions gives rise to substantial gain on the sale for Pepper Group that will vary between $23 million and $25 million before tax and restructuring charges depending on the timing of the Bank of Spain approval for the transaction,” the group said.

“Anticipated charges resulting from the transaction are expected to reduce the gain by $9 million.”

Pepper is confident that the JV will combine the management expertise of both organisations in the unsecured consumer finance market and also leverage the core strengths of both businesses.

“These include Pepper Group's proven cross-sell expertise in the origination of larger-ticket, higher yielding Personal Loans to existing PoS finance customers with strong repayment and performance histories and Popular’s extensive retail branch network and embedded customer base across Spain,” the group said.

“The combined business will also have a complementary national network of PoS merchants across a diverse range of industry segments such as electro, furniture, optical, bedding, dental and beauty.”

A long-term distribution agreement has been established between the two companies to support the origination of unsecured consumer lending products via Popular’s branch network and customer database along with Pepper’s origination platform.

"We genuinely believe that the combination of Pepper Group and Popular will create a consumer finance powerhouse in Spain,” Pepper Group's co-group CEO Patrick Tuttle said.

"This joint venture will combine Pepper Group's market-leading point-of-sale technology and proven personal loan cross-sell expertise, with Popular's deep merchant relationships, branch and customer networks, and highly efficient funding platform in the Spanish market.”

Mike Culhane, Pepper’s co-group chief executive said the deal also demonstrates to Pepper’s shareholders the embedded value the ASX-listed group has been able to create in the geographically diverse consumer lending and loan servicing platforms it has established in large consumer markets like Spain.

Mr Tuttle said Popular's decision to select Pepper Group as the bank's preferred consumer finance partner in the point-of-sale finance and personal loan segments “speaks volumes for the quality of our business and our senior management expertise, not only in the Spanish market but also globally given the intended international reach of our joint venture agreement".

The JV is subject to certain precedent conditions being met, including Bank of Spain approval and certain funding conditions.

In addition to the JV, Popular and Pepper Group will also pursue new business opportunities internationally with the aim of building a global unsecured consumer finance business, focusing on opportunities in Europe, Asia and the Americas.

“Outside of Spain, we are also incredibly excited about the potential for our newly-formed joint venture to acquire or establish new consumer finance platforms in new markets across Europe, Asia and the Americas which are either underserved by existing providers or where we see opportunities to generate strong risk-adjusted returns in niche consumer finance segments," Mr Culhane said.

[Related: Global player set to spice up local mortgage market]