Yet if you leave aside bad timing, Home Credit’s move has substance. The consumer finance firm, part of Kellner’s PPF Group NV, offers point-of-sale loans – think installment loans on fridges, TVs and smartphones at a store or online – as well as cash loans to borrowers who often don’t have bank accounts. Home Credit is looking to raise as much as $1 billion, Bloomberg News reported. If all goes well, a listing is possible in the next month or so.
China accounts for nearly 63% of Home Credit’s loan book, though what it has outside the mainland isn’t insignificant. Its moat in Indonesia, Vietnam and the Philippines rivals the 30% share of the point-of-sale loan market it has closer to home in Eastern Europe and Russia and the 28% it commands in China.
Even within China, Home Credit has protections. It’s not in the dreaded peer-to-peer lending space that Beijing has restricted after a spate of high-profile fraudsters bilked investors. Home Credit raises funds from banks and securitizing future cash flows, not from yield-starved individuals looking for quick returns. (It has its own bank licenses in Russia, Kazakhstan and the Czech Republic.)
Home Credit has been China since 2007, old in consumer-finance terms, and was given a nationwide lending license in 2013. As one of the 27 licensed consumer-finance firms in China, it has access to the People’s Bank of China’s credit reference center. It’s not perfect and excludes a lot of online lending, but remains a useful guide to consumers’ credit history.
There are pitfalls, including a sharp slowdown in economic growth in both China and India. Beijing’s crackdown on the runaway consumer finance industry soured the lender’s nonperforming credit ratio there to 9.7% by the end of 2018, though it has stabilized since. Borrowers under pressure to repay loans they took out elsewhere defaulted on their Home Credit obligations.
Then there’s competition, especially from the likes of Alibaba Group Holding Ltd. and other fintech. Home Credit raises ticket size and tenor for better customers as it learns more about their creditworthiness. China’s internet giants can probably learn just as much, and more quickly, without risking a single dollar. It will be a challenge to maintain an impressive 2.6% return on assets and a near 20% return on equity in the face of competition from machine learning and big data.
The geopolitical risks are also crucial, with the U.S.-China trade war as a backdrop. The Czech Republic is a beachhead of Chinese President Xi Jinping’s Belt and Road project in Eastern Europe. Czech President Milos Zeman, eager to build ties, took Kellner to a meeting with Xi in 2014. But after the Czech cyber watchdog warned in December that Huawei Technologies Co. represented a threat to national security, the Chinese vendor is losing orders in the country. PPF Group’s Czech phone companies are under pressure to avoid using Huawei to develop its 5G network, Bloomberg News reported in March.
It’s unclear whether fraying Chinese-Czech friendship will affect Home Credit. For now, it’s in a better place than the other big consumer lender owned by a foreigner: Dianrong, a P2P platform run by Soul Htite, co-founder of San Francisco-based LendingClub Corp. Earlier this year, the company, backed by Tiger Global Management and Standard Chartered Plc, cut thousands of staff and closed stores to comply with Beijing’s efforts to shrink the industry.
China began cleaning up the P2P industry two years ago and asked players to register. So far, none, including Dianrong, seem to have received an approval. Without that registration, Lufax Holding Ltd., China’s biggest P2P lender, is unlikely to list anytime soon. A different business model means Home Credit isn’t a bad play, whatever Kellner’s timing.
To contact the authors of this story: Nisha Gopalan at firstname.lastname@example.orgAndy Mukherjee at email@example.com
To contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.org
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.