Finance

The Company

In 2013 Credit Corporation (CCP) reported its group core cash operating profit increased to $34.63m compared to $32.74m in 2012. Net earnings after tax were down 45% to $24.03m. Negative adjustments of $703,245 from investments in traded equities and $2.79m from fair value assessment of investment property were booked against profit in 2014. The share price declined to PGK7.98 ($3.24) at the end of December 2013, from PGK8.06 ($3.28) in 2012. Cash at the end of December was $10.70m, while total assets increased from $410.13m to $423.71m and shareholder equity rose from $327.42m to $339.38m. A dividend of $15.52m was distributed during August 2013, up 20% from $12.9m in 2012.

CCP completed stage five of the Era Dorina Estate in 2013, which constituted 20 one-bedroom studio apartments. It also acquired a block of land in close proximity to Era Dorina Estate as part of its purchase of Ela Makana Developments in 2012. CCP plans to erect 50-60 executive apartments, a pool, gym and an entertainment area. Earthworks are expected to start soon and construction should be completed in 2016.

However, vacancies are expected in the Credit House office building, as some firms relocate to spaces in newly developed buildings, most of which are scheduled to open in 2014. Despite the vacancies, CCP believes that Credit House will remain appealing to clients, as it has been recently refurbished and provides a high standard of service. Rental rates for commercial office space have stabilised, but older buildings in the central business district are losing clients to new buildings. Most customers will have bargaining power to negotiate for rents, given the surplus of property on the market. We believe rental incomes from Credit House will be under pressure in the second half of 2014.

The credit market in Papua New Guinea has slowed down largely due to the completion of the construction of the PNG liquefied natural gas (LNG) project, which CCP benefitted immensely from. CCP loans are short term and accounted for about 15% of all loans to PNG LNG subcontractors and spin-offs, mostly in transport and civil contracting. Prospects for short-term funding remain strong due to spin-off contracts for public infrastructure, especially for the 2015 Pacific Games, Highlands Highway rehabilitation, and other mining and petroleum resource projects. CCP had reasonable finance business volumes in the first quarter of 2014.

In terms of its offshore operations, lending volumes in Fiji and Vanuatu slowed due to reduced economic activity and strong competition. In particular, trading conditions in Vanuatu were difficult during the year, with a slow-moving economy and high liquidity in the financial markets putting downward pressure on interest rates. Meanwhile, lending in the Solomon Islands increased on the back of economic growth. PNG-based businesses are extending their presence in the Solomon Islands due to the improved economic conditions.

At an extraordinary general meeting on October 16, 2013 the shareholders of CCP rejected the offer by BSP Group to acquire its four finance company subsidiaries: Credit Corporation Finance, Credit Corporation (SI), Credit Corporation (Fiji), and Credit Corporation ( Vanuatu). No further developments have taken place since.

Company Strategy

CCP (PNG) is expected to benefit significantly from public infrastructure spending. The government has allocated around PGK2.7bn ($1.1bn) in direct funding to infrastructure in 2014, most of which will go to developing roads. CCP has a market share of around 30% in the asset financing business amongst the non-bank licensed financial institutions in PNG, with its main customers being the road construction and transportation companies. The property market in Port Moresby has peaked and rental rates are under pressure as new property stocks are expected to enter the market in the next six to 12 months. Rental income from Credit House may come under pressure and CCP has taken steps to address this. CCP is currently rebranding and modernising the way it does business. It has launched a marketing campaign to boost its presence in the asset finance market.