GE CAPITAL: The finance arm of General Electric has made its presence felt in a dramatic way, and it still sees many growth opportunities

The market was astonished in June when the Financial Sector Restructuring Authority announced that GE Capital, a subsidiary of General Electric of the United States, had won the auction for the hire-purchase assets of the 56 closed finance companies for a total of 21.2 billion baht.

‘Our main focus today is on growth, and how do you do it: organically or by acquisitions? In this environment it can come only from acquisitions, and capitalising on acquisitions has been my personal objective’
MARK NORBOM
President

The surprise was not the amount involved. It was a relatively small investment for a company whose parent has the largest market capitalization and profit in the world, with assets exceeding $ 310 billion.

Instead, observers were struck by the fact that such a huge conglomerate had placed such a sizeable bet on an economy that didn't seem to have found. the bottom.

But Mark Norbom, president of GE Capital (Thailand), maintains that a downturn is the time when a company has to take the risk and think about expansion plans.

He is gearing up to make GE a household name in Thailand just as in the West. He cites a statement made by GE chairman Jack Wlelch: "Today, we are determined, and poised to do the same thing in Asia that we have done in the United States, Europe and Mexico: invest in the future.

"The path to greatness in Asia is irreversible, and GE will be there."

Mr. Norbom is taking his boss at his word. In addition to bagging the hire-purchase portfolio, GE Capital planned to bid for mortgage loans with a face value of 24 billion baht, and was looking at the commercial and industrial assets of the 56 closed finance companies.

It is also looking to buy a life-insurance business, and has presented a proposal to buy a local bank to Mr. Welch. It may also exercise its option to own 80% of Asia Finance Plc (Afco) and merging it with other surviving finance firms to form a major contender. It now holds 49%.

If the strategy sounds aggressive, it is in line with Mr. Norbom's plan to build an asset base exceeding $2 billion in Thailand in the next few years. He wants GE Capital to be the leader in every field in which it invests, both during the crisis and afterward.

"The $2 billion would be equally mixed with consumer and commercial assets. I like to see us 1 leading in several consumer asset areas such as auto finance, credit cards, mortgages and life insurances.
"We are interested in the life-insurance business, but there are some legal problems with the limit on foreign shareholding to just 49%."

GE has two approaches:' either a small investment of less than 20%, or majority control. He says the company is not comfortable with investing, say, 30% to 49%, because the amount of money involved is large but there is no control.

"Where we take large minority stake, we include an option of increasing it to a majority, as with Afco, in which we have a very high probability of increasing the stake to 80%," Mr. Norbom said.

GE now has the largest assets of any company involved in auto loans, and it is confident of the future prospects of the business, which some smaller competitors are abandoning'

To build the card business through Central Card, Mr. Norbom plans to offer more products, turning it into a credit card from a charge card, and offering other incentives for using it. Card membership is now 100,000.

He plans to create further relationships with other companies such as oil companies and car manufacturers, whereby customers can use the card to make purchases and earn rebates.

Purchasing the credit-card businesses, of banks would also be considered. Afco, meanwhile, has potential to be another major operation, Mr. Norbom said.

"Afeo could be used as a base for merging with other finance companies, and we are considering this. We are open to growing either organically or through acquisitions, and these acquisitions could be through company acquisitions or asset acquisitions."

Merging more companies into Afco and raising the capital to an adequate level would help qualify the company for quasi-bank status, but there are no plans to list the firm on the Stock Exchange of Thailand.

"There are several ways of growth in this field," Mr. Norbom said. "One is through seeking new businesses such as trade finance, residential mortgages or commercial portfolios, and there are different businesses we can do."

The company realizes that this is not the time to move into large equity transactions, but it is a time to carefully evaluate opportunities and do only things that it really understands, he added.

The company is thus consolidating in Thailand and streamlining backroom operations, in anticipation that the markets will start to recover by the middle of next year. "We are prepared to handle the current situation for another year without any problems."

Mr. Norbom believes the Thai market has not bottomed out, but it has reached stability on all fronts, giving GE Capital a platform on which to grow.

"Our main focus of GE Capital here today is on growth, and how do you do it: organically or by acquisitions? In this environment it can come only from acquisitions, and capitalizing on acquisitions has been my personal objective."

The parent company has given the green light for expansion but all acquisitions have to go through the board.

"The long-term view of GE Capital is very positive, and thus they are very ready to invest," Mr. Norbom said. "However, given the current environment there is a lot of concern at head office that with Japan having problems, the whole of Asia has a problem.

"Thailand, in my view, is delinked to the problems in Japan now. Yes, there will be some impact but not to a very big extent. Therefore, when 1 go to the board for approval of any acquisitions, we here in Bangkok have to do a lot of work to convince them."

The company's ambitious plans have created a demand for more people to carry them out, and GE Capital plans to hire up to 900 more staff. It offers comprehensive training programmes and plans to make Thailand the hub for training in the region.

There is strong emphasis on hiring and promoting local staff. Only one percent of the workforce is foreign, and even this number will be reduced over time. But for now, Mr. Norbom said, the expertise of a few foreigners is needed to deal with business conditions in the downturn.

"The values we bring to this country should be maintained, and we want to make sure that we have at least enough people to bring in that expertise."

Mr. Norbom said he was happy with the performance and work ethic of the staff, but added that Thailand needed more qualified risk managers, who were very difficult to find.

Thailand's appeal to foreign investors such as GE Capital lay in the country's need not only for capital but also for expertise, he said. Stability in most economic indicators, and openness on the policy and political front were also important.

"The importance to a country's international reputation of a consistent message coming out from government officials, who are respected not only by the international community but also the local community, is tremendous in terms of attracting confidence in the market.

"Without this stability, companies such as GE Capital and other investors cannot commit because it would be like shooting at a moving target."

Weaknesses remain, though, including bankruptcy and legal procedures that inhibit residential and commercial lending.

"Clarity in that area will bring in higher prices for the auctions of the seized assets and I hope that the authorities accelerate discussions [on legal amendments].

"This is one ' of the reasons why we are unable to look at any of the banks as we cannot assess the fair value of their assets.

"If we could get a bank that has hundreds of branches, and somehow we could get our name in there, it would make us a household name and this would help our other products as offering them through Afco has its limits."

"Minority positions in these transactions don't make much sense unless what you are doing is putting in some money to help the bank survive, and then letting the bank spin off, say, its mortgage business with us taking a controlling stake in that business."

GE Capital (Thailand)
Established: 1993
Major shareholders: GE Capital Services, 100% owned by General Electric Co
Registered capital: 275 million baht
Main businesses: Consumer financial services (auto hire-purchase, installment sales, credit cards); Commercial financial services (loans, equipment hire-purchase, leasing); Asset management (Financial Sector Restructuring Authority portfolio)
Subsidiaries: Central Card Co, Asia Finance Corp, Bangkok Capital Venture, Bangkok Capital Equity, GE Capital Auto Leasing
Number of employees: 1,900

Worldwide
GE Capital Services (financial services only)
Headquarters: Stamford, Connecticut, USA
Number of countries: 45
Number of employees: 65,000
1997 gross revenue: US$40 billion
1997 net profit: $3.3 billion