Dear Heartland shareholder,

Heartland Group Holdings Limited (Heartland) is pleased to announce that it has received indicative regulatory approvals from the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) for Heartland Bank Limited’s (Heartland Bank) acquisition of Challenger Bank Limited (Challenger Bank) from Challenger Limited. Subject to receipt of final regulatory approvals, Heartland Bank expects to complete the acquisition of Challenger Bank on 30 April 2024.

Heartland also announces a NZ$210 million equity raise, the successful completion of which APRA and RBNZ’s final regulatory approvals are conditional on. The equity raise comprises a NZ$105 million underwritten placement and a NZ$105 million underwritten 1 for 6.85 pro-rata entitlement offer (Entitlement Offer), described in more detail below.

The acquisition of Challenger Bank is a critical step in Heartland’s strategy for expansion in the Australian market and achieving its long-term growth ambitions. Heartland is already well-established in Australia through its Reverse Mortgage business (Heartland Finance) and Livestock Finance business (StockCo), (together, Heartland Australia). At 31 December 2023, together, Heartland’s Australian Reverse Mortgage and Livestock Finance businesses had approximately NZ$2 billion of gross finance receivables.

Completing the Challenger Bank acquisition will make Heartland Bank the first New Zealand registered bank to acquire an Australian Authorised Deposit-Taking Institution (ADI). Subject to completion, under Heartland Bank’s ownership, Challenger Bank will be rebranded to Heartland Bank (Heartland Bank Australia), providing a platform to extend Heartland’s “best or only” strategy in Australia. Once Heartland Australia becomes part of Heartland Bank Australia, it will be the only specialist bank provider of both reverse mortgages and livestock finance in Australia. 

Proceeds from the equity raise will be used to fund the balance of the consideration payable for the Challenger Bank acquisition, support the expected regulatory capital requirements of Challenger Bank and Heartland Bank, and cater for near-term projected asset growth post-completion of the Challenger Bank acquisition.

1 FOR 6.85 ENTITLEMENT OFFER AT NZ$1.00 PER NEW SHARE
Under the Entitlement Offer, eligible shareholders may apply for 1 new share for every 6.85 existing shares held as at 7.00pm NZST (5.00pm AEST) on Tuesday 9 April 2024, at an application price of NZ$1.00 per new share. 

The application price is NZ$1.00, reflecting an 18.0% discount to the last close price of NZ$1.22 on 5 April 2024, and a 14.6% discount to the theoretical ex-rights price (TERP) of NZ$1.1703¹. 

The placement and the institutional component of the Entitlement Offer will be accelerated and will close on Tuesday 9 April 2024. Eligible retail shareholders have until 5.00pm NZST (3.00pm AEST) on Monday 22 April 2024 to subscribe for new shares. In addition to being able to take up their entitlement, Eligible Retail Shareholders who take up their entitlement in full may apply for additional new shares not taken up by other retail shareholders up to a maximum of 100% above their pro rata entitlement.

Heartland has received a pre-commitment from its largest shareholder, Harrogate Trustee Limited, for approximately NZ$14 million of the equity raise. The placement and Entitlement Offer, excluding the amount pre-committed by Harrogate Trustee Limited, are fully underwritten by Jarden Partners Limited. Under the Entitlement Offer, there will be no trading of entitlements or any shortfall bookbuild of new shares not taken up. Those shareholders who do not exercise their entitlements, or who are ineligible to do 
so, will have their shareholdings diluted.

After reading the accompanying Offer Document, the Board encourages you to seek financial, investment, or other professional advice from a qualified professional adviser and that you take your time to consider this Offer. Additional informational can be found at www.heartlandshareoffer.co.nz and in the announcement and investor presentation released to the NZX and ASX on Monday 8 April 2024.

On behalf of the Board, thank you for your continued support. We welcome your consideration of, and participation in, the Entitlement Offer.

Yours sincerely,

Greg Tomlinson
Heartland Board Chair


 

1.      TERP is the theoretical ex-rights price at which Heartland ordinary shares would trade immediately after the ex-rights date for the Entitlement Offer. TERP is calculated with reference to Heartland’s closing share price of NZ$1.22 on 5 April 2024 and includes all new shares issued under the placement and the Entitlement Offer. TERP is a theoretical calculation only and the actual price at which Heartland ordinary shares will trade immediately after the ex-rights date for the Entitlement Offer will depend on many factors and may not be equal to TERP.