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Liberty Financial IPO under scrutiny over loan promise

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    With its $1.8 billion initial public offering around the corner, non-bank lender Liberty Financial is drawing scrutiny for failing to tell prospective shareholders about an $82 million loan promise to a senior employee.

    Liberty’s continuing battle with the Australian Tax Office over four years of disputed returns is also worrying experts, who fear the lender’s future earnings will take a hit if the ATO triumphs, according to a report by The Sydney Morning Herald.

    Liberty plans to list on the Australian Securities Exchange on Dec. 15 with one of the largest IPOs of 2020 after completing the institutional investor component of its $320 million bookbuild, the Herald reported. Liberty is the 10th largest lender in Australia, with a loan portfolio of $11.5 billion. The lender will conduct a retail offer Friday to complete its $320 million capital raising.

    But market watchers are worried about some of Liberty’s disclosures in its prospectus, including the omission of some important legal matters and several related party loans totalling $322 million to related party shareholders.

    The Herald reported that Liberty is involved in an ongoing court dispute over the ownership of Macquarie-backed Connective Services, the nation’s second largest mortgage broker. That dispute was not disclosed in the prospectus.

    Read more: Three Liberty Financial shareholders worth nearly $2 billion

    Last year, the Supreme Court of Victoria heard Liberty had promised to provide an $81.67 million loan to a company called Slea Pty Ltd, which is owned by a senior Liberty employee. Slea owns a stake in Connective Services, the Herald reported.

    Slea is suing Connective Services, alleging that it was oppressed as a shareholder by having its stake reduced through a series of transaction. While Liberty is not a party to the case, it is funding the court action. The court has heard that the promised loans are to help Slea buy out the majority owners of Connective Services, according to the Herald.

    The case has thrown up roadblocks to an effort by AFG, Australia’s largest mortgage aggregator, to buy Connective Services for $120 million. AFG is waiting for a resolution in the case before moving forward with the deal.

    The promised loan is not specifically referenced in Liberty’s prospectus, according to the Herald. Nor is the legal proceeding, although Slea’s case is being funded by Liberty. Citing sources familiar with the matter, the Herald reported that Liberty had not disclosed the case in its prospectus because it was not a party to the matter.

    In October 2019, a senior Liberty executive told the Supreme Court that the loan had not been documented by the company, but was arranged through a verbal agreement, the Herald reported.

    A spokesman for Liberty emphasised that the lender was not a party to the litigation.

    “We also deny that Liberty has any undocumented loans,” the spokesman told the Herald. “Loan contracts that are relevant to the Liberty Group have been thoroughly reviewed. The offer document sets out matters that are required to be disclosed to new investors.”

    Liberty said that the loan was not documented because although it was offered, it was not accepted.

    Original Article