Bendigo looks to Southern

The sale of Southern comes on the heels of the collapse last month of regional non-bank lender Banksia Group, which put in doubt up to $660 million of investor funds.

For its part Southern has $290 million worth of investor funds on deposit. Its loan book specialises in equipment finance and commercial property assets and it has a financial planning business.

The Australian Securities and Investments Commission has set up a taskforce to regulate the debenture industry in the wake of the Banksia collapse.

Bendigo confirmed on Monday it had entered into a non-binding heads of agreement to acquire Southern Finance's assets for an undisclosed amount. "We have carefully considered all options and believe the time is right to pursue the proposed transaction with Bendigo and Adelaide Bank," Southern chief executive Ashley King said.

Southern said it was working with Bendigo and Adelaide Bank with the aim of having a binding agreement finalised by December 3.

However, Southern said it was forced to freeze investors' funds to allow the negotiations for the sale to move ahead. The decision to freeze redemptions was to ensure "fair and equal treatment of all investors" in Southern Notes. Southern raises funds from investors and then on-lends these funds for construction and business lending.

Mr King said he expects that access to funds on Southern Notes will recommence after the suspension period ends and "providing that Southern and Bendigo and Adelaide Bank successfully conclude the proposed transaction".