IPO Candidate Home Credit Is Important in China’s Small Loan Market EJINSIGHT

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. It would be the first Czech company to register in the city.

Why Hong Kong? Probably because Home Credit derives most of its business from China. It has cornered 28% of the mainland’s consumer loan market, overtaking 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 in public companies. Kellner, then 27, borrowed money from friends and family to buy stock in more than 200 public companies.

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

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

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

Home Credit initially operated in the Czech Republic and Russia. Kellner began targeting China in 2008 as Beijing sought to strengthen relations 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 the titular Czech President Miloš Zeman will visit Beijing several times.

Kellner finally got his reward. Home Credit was awarded one of the first four consumer loan business licenses by Beijing. It remains the only foreign company to have such a license to date.

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

China’s consumer loan market still has vast potential for growth. Top 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. Nearly 64% of the company’s loan balance, which stood at 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 operates 239,000 outlets in more than 300 Chinese cities. It has 58,000 employees in the country.

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

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

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

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

Still, Home Credit’s listing should inject some much-needed vigor into Hong Kong’s lackluster 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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Priscilla C. Carnegie