Finance Ireland ditches IPO prospect as M&G buys into lender

Finance Ireland, the State’s largest nonbank lender, has abandoned any prospect of floating on the stock market in the medium term, after securing a new UK investor to help buy out the Ireland Strategic Investment Fund’s (ISIF) 33 per cent stake and back a €50 million equity fundraising.

The series of transactions, which also saw a group of long-standing investors and management sell shares, value Finance Ireland at about €255 million, including money raised in the equity raise.

The new investor, London-based M&G, joined forces with Pimco, which previously held a 33 per cent stake in Finance Ireland, to pay €67.5 million for ISIF’s interest, according to sources. It equated to about a 50 per cent return on money the Irish sovereign investment fund committed to Finance Ireland over the past six years.

M&G and Pimco also bought out about 130 long-standing investors in Finance Ireland, a legacy of the company’s short-lived time on the stock market before the financial crisis, as well as some of the stock held by management and staff, led by chief executive Billy Kane. The two investment firms now own 90 per cent of the business.

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Mr Kane declined to comment in a phone interview with The Irish Times on the exact stakes of the two investment groups or his own holding.

Finance Ireland, which was forced to drop plans for a €100 million-plus initial public offering (IPO) in May 2020 as the rapid spread of Covid-19 globally threw equity markets into turmoil, will use the fresh cash to support its future growth and expansion, including the continued growth of its car finance business.

The company recently moved its car finance business on to its own balance sheet to maximise its growth potential. It previously used funding from UK merchant banking group Close Brothers for this business.

Mr Kane, a former chief executive of Irish Permanent, said Finance Ireland began a process to raise equity privately last August, even as global equity markets were soaring. He said the company was “very lucky” that it did not try to court public markets again, given how equities had plunged so far this year as central banks moved to hike increase interest rates to tackle soaring inflation.

“The original IPO plan was about raising €50 million of funding and creating a €60 million liquidity event [for existing shareholders]. We’ve now achieved both at a very strong price,” he said. “We now have plenty of capital, though [an IPO] may be back on the agenda in five years’ time.”

Finance Ireland employs more than 170 people and is Ireland’s largest nonbank lender, specialising in car finance, commercial property, residential mortgages, SME, agri-lending and leasing finance. It was also poised to enter the green lending market, supporting consumers with a competitively priced home energy loan offering, it said. In 2021, the company’s new lending figure passed €1 billion for the first time.

Finance Ireland had a partnership with M&G before the UK group decided to take an equity stake. M&G funds the company’s mortgage lending. Finance Ireland said the exit of ISIF was in line with the State investment organisation’s business strategy, after supporting the growth of the business over the past six years.

“This transaction is a huge vote of confidence not just in Finance Ireland and the management team but in the Irish economy, providing us with long-term capital to grow and expand our customer offering and execute our long-term growth strategy,” said Mr Kane.

Mr Kane said that while group lending so far this year had outpaced activity seen in the same period in 2021, he predicted that demand would decline in the second half of the year amid an international shortage of new cars, and as small businesses and would-be house buyers became more cautious in a rising interest-rates environment. “It’ll be a year of two halves,” he said.

Finance Ireland raised its own fixed rates for new business last month, with its three- and five-year products bearing the brunt of the increases, to reflect rising market funding costs. Mr Kane said most of the lender’s mortgage business was now in the market for 10- to 20-year fixed-rate mortgages.