RAMS Home Loans Group Ltd has received independent expert approval for the fire sale of its franchise network, but its existing mortgage book remains in deep trouble.
The beleaguered non-bank lender has also revealed that its founder and chairman John Kinghorn, who made $650 million when RAMS listed earlier this year, was paid $80,000 in 2006/07.
Chief executive Greg Kolivos received a total remuneration of $625,000, which included a $200,000 cash bonus.
Westpac Banking Corporation Ltd's $140 million offer for RAMS' 92 branches, brand name, and all the future business it writes, was fair-value and in RAMS' best interests "given its current circumstances", a report by Deloitte Corporate Finance said.
As a further sweetener, Westpac on October 2 also agreed to provide RAMS with $1.5 billion to fund its existing mortgage book, which Westpac decided not to buy.
RAMS ran into trouble in August when the global liquidity freeze cut off more than $6 billion of funding that it sourced from the US extendable commercial paper (XCP) market.
Deloitte has valued RAMS' $14.6 billion loan book at between $213.7 million and $272.9 million, assuming RAMS can refinance its XCP programs.
This represents a value of between 60 and 70 cents per share.
But if RAMS can't refinance the programs, Deloitte has valued the book between $124 million and $152.6 million, representing a per share value between 35 cents and 43 cents.
RAMS shares closed one cent higher at 32.5 cents. They were offered in May at $2.50 each.
The firm confirmed that the $1.5 billion in funding from Westpac was conditional on RAMS forming a syndicate of lenders.
It also accepted it might not be able to find them by the time its XCP programs expire in February.
If it can't, RAMS said it will lose "all, or substantially all" of the economic benefit of the $6 billion plus worth of loans funded by the XCP programs.
As a double whammy, RAMS will also be obliged to pay trailing commission to brokers on those loans.
RAMS said it would be "optimistic" to believe that it could fund its loan book in residential mortgage-backed securities (RMBS) markets instead.
It also accepted that funding costs will be higher going forward, adding that XCP and RMBS market were still very hostile.
In its explanatory memorandum to shareholders, RAMS also revealed that it had tried all sort of ways to fund its mortgage book.
Market soundings for RMBS issues in the US and Europe fell on deaf ears.
Earlier this month, RAMS priced a $300 million RMBS issue in Australia, but it revealed the issue was planned at $1 billion.
RAMS also considered tendering the sale of all or parts of its business, but said such a move was "not deemed practicable in the circumstances and short time available".
Mr Kinghorn's $80,000 pay packet last financial year was the same as his pay a year prior.
Mr Kolivos was paid $570,000 in 2005/06 compared to his most recent pay packet of $625,000.
For 2006/07, RAMS booked a 49 per cent increase in net profit to $43.5 million.
RAMS shareholders will vote on Westpac's offer at the non-bank lender's annual general meeting on November 26.
Westpac, meanwhile, said it was happy with Deloitte's valuation of the franchise business of between $35.6 million to $167.5 million.
"I believe Westpac is well positioned to deliver a positive future for RAMS franchisees and employees," chief executive David Morgan said.
Source:AAP 2007
