Home Credit IPO Candidate Significant in Chinese Small Loan Market EJINSIGHT

Petr Kellner, trichest man in the Czech Republic, has filed a first public offer in Hong Kong for his consumer credit business Home Credit.

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

Why Hong-Kong? Most likely because Home Credit derives most of its business from China. It has captured 28% of the consumer loan market on the continent, overtaking domestic competitors such as Alibaba, Tencent and Ping An Insurance.

Kellner made his first fortune thanks to the campaign to privatize bonds launched by the Czechs after their independence in 1993.

The program encouraged Czech citizens to buy shares in state-owned enterprises. Kellner, then 27, borrowed money from friends and family to acquire shares in more than 200 state-owned companies.

In 1995, Kellner bought a 20 percent stake in the country’s largest insurance company, Česká pojišťovna, and further increased its stake to 93 percent later.

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

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

Home Credit first did business in the Czech Republic and Russia. Kellner began to look to China in 2008, as Beijing wanted to strengthen its relations with former members of the Soviet Union in Eastern Europe.

Sensing another great opportunity, Kellner actively promoted the ties between China and his country, even taking the Czech President Miloš Zeman will visit Beijing on several occasions.

Kellner finally got his reward. Home Credit was awarded one of Beijing’s first four consumer credit business licenses. It remains to this day the only foreign company to have such a license.

Consumer loans are small installment loans for the purchase of consumer items such as television, air conditioning, and computers.

The Chinese consumer loan market still has vast potential for growth. Major domestic players like Alibaba, Tencent and Ping An are actively expanding their presence in the industry.

As a first comer, Home Credit now holds 28% of the market. Almost 64% of the company’s loan balance of 20.9 billion euros ($ 23.05 billion) in March came from mainland China.

The consumer lender had 50.3 million customers in China at the end of March and manages 239,000 outlets in more than 300 Chinese cities. It has 58,000 employees nationwide.

Home Credit is said to have already extended its reach to small towns and rural areas.

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

And many borrowers, especially young people, are unable to snowball their loans.

In addition, Home Credit has reportedly been the subject of more than 2,000 complaints about debt collectors using violence and intimidation.

Nonetheless, Home Credit’s listing is expected to inject much-needed vigor into the lackluster Hong Kong IPO market.

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

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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