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Home Credit expands to China

Czech firm plans for growth in eastern Chinese province

By Markéta Hulpachová
Staff Writer, The Prague Post
June 13th, 2007 issue

China’s rapidly growing economy presents lucrative opportunities for global investors, and Czech companies want a piece of the pie.
PPF, the largest Czech-owned financial group, plans to open Home Credit China, a consumer financing firm based in the southeastern province of Canton, near Hong Kong, PPF spokesman Jiří Hájek said June 7. Like similar branches in the Czech Republic and Russia, the company would provide loans for consumer goods such as electronics and home appliances.
These plans come soon after the Industry and Trade ministry, during a trade visit to western China in late May, announced that PPF is in negotiations to purchase shares of Nanchang City Commercial, a state-controlled bank in the southeastern province of Jiangxi, said spokesman Tomáš Bartovský. A partnership with a regional bank would give PPF an entry point onto the Chinese consumer finance market.
Founded in Prague in 1991, PPF is owned by the nation’s richest man, Petr Kellner, who, through PPF owns majority stakes in the largest Czech insurance company, Česká pojišťovna, and consumer finance firm Home Credit.
Currently, PPF’s expansion plans concentrate on transitional economies. The firm launched the Russian branch of Home Credit in 2002, where it is now the second-largest consumer finance firm, providing loans to nearly 7 million people since its inception.
The company does not require loan applicants to possess a credit card or bank account, said Tomáš Černý, head of Home Credit Group’s capital markets.
Now, PPF is looking to replicate its successful model further east.
Typically laden with high interest rates, the loans offered by Home Credit China will target a fledgling market where the idea of buying televisions or washing machines on credit is still a fairly new concept.
Aside from the consumer market, PPF’s Chinese investments focus on non-performing loans, or NPLs. Since January, the company has bought portfolios from regional banks in northern China with total original principal balances (OPB) over $900 million. PPF began investing in Chinese NPLs in 2005.
Since that year, the total OPB value of NPLs purchased by foreign investors has grown more than 42 percent.
“A company typically invests in NPLs when it feels it has better resources [than the seller] to collect on them. In such cases, it is possible for both parties to profit,” said Raiffeisenbank analyst Aleš Michl.
Going west
As the ministry announced PPF’s plans, other Czech manufacturers were showcasing their machinery as part of a delegation to China led by the Industry and Trade Ministry May 2330. The firms formed multiple partnerships for future developmental projects in the country.
Industry and Trade Minister Martin Říman, whose visit was prompted by an invitation from the Chinese Trade Ministry, said securing stakes in large Chinese projects was his main objective. The Czech Republic’s technical skill and heavy industry know-how make it an ideal collaborator for Chinese infrastructural projects and manufacturing, Říman said.
“The Czech Republic can offer large turnkey projects such as power plants, machinery, consumer goods, as well as services,” he said.
During the visit, the ministry focused predominantly on the rural provinces of western China, where the government plans large investments into regional infrastructure and energy supply. Unlike the more developed eastern provinces, where global competition is fierce, the under-developed regions in the west provide fresh investment opportunities.
Říman’s visit was bolstered by the opening of CzechTrade’s second office in China May 25. The state-supported outward investment agency founded the office in Chengdu, the regional capital of the western province of Sichuan.
“Western China is on the verge of a dramatic economic upswing, and it’s crucial for us to be on the starting line in time,” said Ivan Jukl, CzechTrade’s general manager.
The new outpost was unveiled at a Chengdu exposition of Czech companies interested in trade with China. According to ministry spokesman Bartovský, a majority of the participating companies were manufacturers of heavy machinery. Several companies closed long-term deals for the development of Chinese energy projects, he said.
In 2005, around 82 percent of China’s electricity was produced by coal plants, many of which were outdated. Plagued by energy shortages and the highest carbon emissions in the world, the Chinese government intends to erect 32 new nuclear power plants by 2022.
Aside from supplying the rapidly growing industrial regions in the south, future power plants will focus on the remote western provinces of Jiangsu, Zhejiang and Guangdong.
“Peking realizes that the country’s power shortages have reached a critical level,” Bartovský said. “[The government] wants to construct new power plants in the regions that were formerly excluded from energy development.”

Markéta Hulpachová can be reached at mhulpachova@praguepost.com


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