In another life, Kevin Koo could have led an illustrious career in music. He was awarded the Deutscher Akademischer Austausch Dienst Scholarship by the Public Service Commission in 1981 to study music in Germany. Five years later, he graduated with a degree from the Robert Schumann University of Music Düsseldorf. Upon his return to Singapore, he played the cello as a member of the prestigious Singapore Symphony Orchestra.
But today, Koo is founder and executive chairman of Credit Bureau Asia (CBA). The company provides credit and risk information to an extensive client base across Singapore, Malaysia, Cambodia and Myanmar. Its clients include banks, financial institutions, MNCs, telecommunication companies, government bodies and public agencies, and individuals.
As Asian economies have grown tremendously over the past few decades, the need for credit and risk information has surged in tandem. Unsurprisingly, this has led CBA to perform well in the last few years, building up a solid balance sheet.
For FY2019 ended Dec 31, the company’s revenue rose 8.6% y-o-y to $40.6 million on the back of higher sales of credit reports. Its earnings jumped 28.6% y-o-y to $7 million. As at Dec 31, 2019, the company had a net cash position of $27.6 million.
Koo now intends to take CBA for an IPO on the Mainboard of the Singapore Exchange. The company is issuing 1 million new shares and 29 million vendor shares through a public offer of 1.5 million shares and placement of 28.5 million. At an IPO price of 93 cents, this translates to 30.5 times historical adjusted earnings and 5.5 times book value, and the gross proceeds will amount to $27.9 million.
Of the net proceeds, $7.1 million will be used to help drive organic growth by introducing better software, infrastructure and so on to increase the scope of membership. Part of the proceeds may be used for acquiring or investing in other businesses.
Several cornerstone investors are participating in the IPO. They are Aberdeen Standard Investments (Asia), Affin Hwang Asset Management, Eastspring Investments (Singapore) and Tokyo Shoko Research. After completion of the IPO, Koo will own 155.2 million shares or a 67.3% stake in the company.
Speaking to The Edge Singapore, Koo says CBA’s upcoming IPO is like a “dream” come true for him. “It’s like graduation for a businessman,” he says in an interview. Koo believes the company can become “big” and “strong” in the region and attract talented hires. A listing will also improve the company’s corporate governance as part of SGX’s listing requirements, he adds.
Nevertheless, the IPO will come at a time of economic uncertainty amid the Covid-19 pandemic. Business and investment plans have been put on hold, given the various restrictive measures to curb the spread of the virus. No vaccine has yet to be produced and delivered commercially, despite positive news on the efficacy of some vaccines. So, why is CBA listing its shares now?
Koo says the timing is not a major factor in CBA’s IPO launch. “In good or bad times, the shape of the economy will not impact our company. Businesses want credit and risk information. They want to know whether the other party is credible to do business with,” he says.
For him, the IPO is an opportunity for investors to participate in a cash-generating business. He emphasises that not many companies can say that they will do well regardless of the economic cycle — unlike CBA. Moreover, the company has strong market share in each country, given that it is either the dominant or sole player. “We have given dividends every year to our shareholders for the past many years,” says Koo.
The board of CBA intends to recommend dividends of at least 90% of earnings in FY2021 and FY2022 ending Dec 31.
Strong market share
CBA operates two types of businesses. Under its financial institution (FI) data business, the company provides a wide range of derivative products and services to its subscribing members — banks and other financial institutions. These include credit scoring, data analytics, credit monitoring services and customised solutions. These products and services are derived from credit information on individual consumers, corporations and registered partnerships contributed by subscribing members.
In Singapore, CBA’s FI data business is run by Credit Bureau Singapore (CBS), its indirect subsidiary. CBS currently has over 30 members, comprising the three local banks — DBS Bank, Oversea-Chinese Banking Corp and UOB Bank. Many of the international banks are members too, including Bank of China, CIMB Bank Singapore Branch, Citibank Singapore, HSBC Bank (Singapore), Maybank Singapore, Standard Chartered Bank (Singapore) and Sumitomo Mitsui Banking Corp.
Other members of CBS are credit providers such as American Express International and Diners Club International, and finance companies such as Hong Leong Finance and Singapura Finance. Overall, CBS maintains credit files of more than 3.7 million unique individuals and entities in Singapore. This translates to a credit bureau coverage rate (versus the entire population) of about 64.2% as at Dec 31, 2019.
In Cambodia, CBA’s FI data business is operated by its indirect subsidiary Credit Bureau (Cambodia) or CBC. The latter is the sole provider of financial information, credit reporting services, and analytical solutions to financial institutions and consumers there. CBC maintains credit files of more than six million individuals and about 21,000 business entities.
In Myanmar, the company’s FI data business is run by its indirect subsidiary Myanmar Credit Bureau (MMCB). The latter is also the sole credit bureau there after it was granted a non-exclusive licence in 2018 by the Central Bank of Myanmar. Koo says MMCB just commenced operations a few weeks ago.
The FI data business aside, CBA also operates a non-FI data business in Singapore and Malaysia via its indirect subsidiaries: Dun & Bradstreet (Singapore) and Dun & Bradstreet (Malaysia). The two subsidiaries have a combined customer base of over 6,000 customers across both countries. They include the likes of MNCs such as Procter & Gamble, IBM, Canon, Hitachi, Samsung and Unilever.
Asked why CBA had ventured into Cambodia, Koo says the company was invited by the National Bank of Cambodia to consider setting up a credit bureau in the country. The invitation was extended to CBA because of its reputation as a Singapore company, he says.
Following the establishment of CBC, CBA decided to replicate its success in Myanmar. According to Koo, the country presents plenty of opportunities. For instance, there are over 220 potential members including national and local banks, foreign bank branches and non-bank financial institutions there. Myanmar also has a reported population of around 53 million as at end-2019. Given that MMCB is the sole player currently, Koo says the company has the first-mover advantage. “It’s a huge opportunity,” he says.
Expansion overseas, digital banks, moneylenders
Moving forward, Koo notes that CBA has plans to expand into other countries in Asia. For instance, it is eyeing Vietnam, which has enjoyed tremendous growth over the last few years. Still, the country already has two players: one government-owned; and the other from the private sector, he says. But the company “will definitely do something there”, he says, declining to touch on details for now.
Indonesia is also an opportunity. Koo notes that CBA has the right of first refusal to acquire an equity stake in NSP Indonesia Jaya (NSPIJ). The latter has a significant minority interest in Kredit Biro Indonesia Jaya (KBIJ), a credit bureau operator based in Indonesia. The company also has the right of first refusal to acquire an equity stake in HNN Technologies (HNN), an entity which licenses the source codes required for KBIJ’s operations.
Nevertheless, the company could face a hurdle if it decides to expand in Indonesia. This is because the company’s executive director William Lim is facing three lawsuits there. Lim, in his capacity as president director of KBIJ, is alleged to have “used monies from KBIJ shareholder loans for unclear purposes” among other allegations, according to the prospectus.
Will this hamper CBA’s entry into Indonesia? Lim reckons that the lawsuits will not affect any possible expansion into the country as the lawsuits do not involve the company. He believes that the allegations made against him are “without merit”, adding that he has engaged an Indonesian law firm to defend himself against the lawsuits.
In Singapore, the upcoming digital banks will be a growth driver for CBA. The Monetary Authority of Singapore (MAS) is expected to announce the successful applicants for two digital full bank licences and three digital wholesale bank licences by this year-end. Existing financial institutions might also launch their own digital-only subsidiaries which do not need a separate MAS license.
The introduction of digital banks is expected to increase the amount of data available on consumers and businesses. As credit grows and people use new lending platforms, digital banks will require more credit and risk information solutions to perform due diligence on their customers. “Naturally, they will become our members [too],” says Koo.
Moneylenders will also be a growth driver for CBA. Last month, CBS was awarded a tender by the Ministry of Law of Singapore to develop, establish and operate the Moneylenders Credit Bureau (MLCB) for three years. Koo says CBS will begin operating MLCB by the first quarter of next year.
To perform a concert, the musicians in the orchestra have to play the right notes at the right time under the baton of a conductor. For Koo, getting into this business was an “accident” of “meeting the right people at the right time”.
Now, for the next movement of the concerto.
