IPO candidate Home Credit is big in China small loan market

September 05, 2019 10:51
Home Credit has a 28 percent share of China's consumer lending market. Photo: Reuters

Petr Kellner, the Czech Republic’s richest man, has filed for an initial public offering in Hong Kong for his consumer lending business Home Credit.

The company has an estimated valuation of over HK$100 billion. This would be the first Czech company to list in the city.

Why Hong Kong? Most probably because Home Credit gets most of its business from China. It has cornered 28 percent of the mainland consumer lending market, surpassing domestic rivals such as Alibaba, Tencent and Ping An Insurance.

Kellner made his first fortune from the voucher privatization campaign launched by the Czechs after becoming independent in 1993.

The program encouraged Czech citizens to buy shares of state-owned companies. Kellner, then 27, borrowed money from his friends and relatives to snap up shares of over 200 SOEs.

In 1995, Kellner bought 20 percent stake of the country's biggest insurance company, Česká pojišťovna, and further increased his stake to 93 percent later on.

Česká pojišťovna formed the foundation of his financial empire as Kellner expanded into banking, securities, credit cards, and other businesses.

His personal wealth is estimated at US$15.5 billion, according to Forbes. And the 55-year-old is now ranked No. 73 among the world's richest.

Home Credit did business in the Czech Republic and Russia initially.  Kellner began setting his sights on China in 2008 as Beijing became keen on enhancing its relationship with former members of the Soviet Union in eastern Europe.

Sensing another great opportunity, Kellner actively promoted ties between China and his country, even taking incumbent Czech President Miloš Zeman to visit Beijing multiple times.

Kellner finally got his reward. Home Credit was awarded one of the first four consumer lending business licenses by Beijing. It remains the only foreign company that has such a license so far.

Consumer lending refers to small installment loans for the purchase of consumer items such as television, air-conditioner and computer.

China’s consumer lending market still has vast growth potential. Leading domestic players like Alibaba, Tencent and Ping An are actively expanding their presence in the business.

As an early comer, Home Credit now owns 28 percent of the market. Nearly 64 percent of the company’s loan balance of 20.9 billion euros (US$23.05 billion) as of March originated from mainland China.

The consumer lender has 50.3 million customers in China by the end of March, and runs 239,000 outlets in over 300 Chinese cities. It has 58,000 employees in the country.

It is said that Home Credit has already expanded its reach to smaller cities and rural areas.

That being said, the company’s success has raised some controversy. The average interest rate it charges, about 35 percent, is considered excessive by many people.

And many borrowers, particularly young people, are unable to pay back their snowballing loans.

Also, Home Credit was said to be the subject of over 2,000 complaints about debt collectors resorting to violence and intimidation.

Still, the listing of Home Credit is set to inject some much-needed vigor into Hong Kong’s lackluster IPO market.

This article appeared in the Hong Kong Economic Journal on Sept 4

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal columnist