Property

Property market: For the ‘right’ client the time to borrow may be now

Grain Central, July 19, 2016

THERE is great news for expansion-minded farmers and graziers in good financial shape – a leading independent property valuation and advisory group suggests financial deals are readily available to purchase cattle assets to increase scale.

From a lending perspective, however the focus is on working with the right clients to take advantage of available opportunity.

The latest Month in Review by Herron Todd White claims the strong outlook in the cattle and grains market is driving strong property sales – with both new and established money.

Tim Lane, National Director Rural, said the opportunity to access finance at current rates and potentially lock in costs is assisting this trend.

“A recent conversation with a corporate agri-banker suggests the finance market is very competitive and there are good deals being done,” he said.

Mr Lane said there was an opportunity to restructure current finances and get a better deal or access additional capital.

It’s pretty easy to get two or three financiers bidding for your debt business

“It’s pretty easy to get two or three financiers bidding for your debt business, if you look like the right shape.”

Because money is so cheap, all the banks have capital and want to get it out into the market, but Mr Lane warns that the banks are still looking for people to pay down debts over time.

“Pricing and terms are becoming more negotiable for the right clients. Lenders are looking for someone who demonstrates a year-in, year-out capacity to create a profit over and above their costs of operation and their living costs.”

“In other words, they have a good profitable business, a good equity position, both the balance sheet strength and the demonstrated management skills to run the operations, and can deal with the seasonal and commodity risks.”

Ben Barratt is responsible for ANZ’s Corporate Agribusiness portfolio for Queensland the Northern Territory, which focuses on primary producers and agribusinesses with funding requirements greater than $10 million.

He said he looks for a client who has the following outlook:

  • A proven track record of profitability – a balance sheet in order to expand.
  • Can service their existing facilities – if it’s straight finance.
  • Has management in place with a clear succession plan so they know who’s going to be operating that asset into the future.
  • Is innovative and has the productivity of their farm business where they want it to be.
  • Has a strong track-record and a strong direction of where they are headed in the future.
Jason Lipp

Jason Lipp

The National Australia Bank’s ‎Regional Agribusiness Manager for the Darling Downs, Jason Lipp agrees.

“First and foremost, I look for debt serviceability or cash flow; secondly, management expertise and capability; and thirdly, a borrower’s underlying equity position. It’s very much a case-by-case situation,” he said.

However, the banks remain tight-lipped about the deals they are currently offering clients.

Mr Lipp said NAB was market-competitive when it came to interest rates, no matter what the Aussie dollar is doing.

At the moment there were good opportunities to consider fixed interest rates in the present market, he suggested.

Mr Lipp said many farmer and grazier clients were looking to expand their businesses –buying additional country or relocating to a larger holding. “There are multiple elements of the value chain considering expansion,” he said.

Mr Barratt said the deals depended on the individual circumstances of that particular producer.

“Some are looking to buy-out the neighbour. It makes sense from an efficiency point of view and sometimes they are prepared to pay more because of the potential reduced ongoing operating costs.”

Mr Barratt said other producers were looking to buy country in different areas to complement their existing business and to spread their geographical and climatic risk.

There are a number of triggers that have made the financial environment so competitive and Mr Barratt attributes it to a combination of interest rates, commodity prices, the eastern young cattle index and dramatic turnaround in seasonal conditions.

 

Next week: We continue this discussion with a look at some of the other available options in the lending market.

 

 

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