Interview with Jiří Hrouda: The energy crisis has helped us
The energy market will move significantly in the coming years and many things will be for sale. We want to take advantage of this, says Jiří Hrouda, head of the Creditas investment group belonging to one of the richest Czechs. The domestic power industry is going through a turbulent period. In the coming years, a huge number of solar, wind power plants and other sources will be built, which will have an impact on the stability of the networks.
"This dependence on renewable energy sources has quite a significant impact on energy distribution itself. On the electrical network and the way it is organized, the way it is managed. And we see great opportunities there,” says Jiří Hrouda, head of the Creditas group, which belongs to Olomouc businessman Pavel Hubáček, in an interview for SZ Byznys.
Creditas completed the acquisition of one of the largest biomass heating plants in the Czech Republic a week ago. Hubáček paid more than hundreds of millions of crowns for this source in the ČKD Kutná Hora industrial area.
Energy is an important leg of the Creditas group. You have assets worth more than two billion in the Creditas Energy fund. These are about one hundred and twenty small distribution systems with more than 6,000 points of consumption. Commodity prices are rising sharply now. Where do you see the biggest opportunities in the power industry?
We focus primarily on energy distribution. So we're not exactly the typical energy company that buys and sells energy. This means that the current situation on the commodity market has not affected us, more or less. Perhaps, with some slight exaggeration, it has helped us a little because the market has started to become somewhat consolidated again. And that's rather a better signal for our large distribution.
Today, we are the fourth largest distributor after the large utilities (ČEZ, E.ON or PRE, editor's note) that operate on the Czech market. This means that there is room for growth, rather moderate, organic growth.
Is green energy a topic for you?
Yes. We are now actively monitoring what is happening on the energy market. There is quite a large amount of pressure on a major shift towards renewable energy sources. But the dependence on renewable energy sources has quite a significant impact on energy distribution itself. On the electrical network and the way it is organized, the way it is managed. And there we see great opportunities.
I admit that the area of energy production is also interesting, because, as you know, there is a lot of pressure to deviate from coal sources. It cannot be done separately, because old resources cannot just be switched off one day. These resources need to be replaced and built in some way. And we definitely want to be part of these emerging market trends.
So if more so-called unstable sources, such as solar panels or wind energy, which only work for part of the day or part of the year, are built within the transition to green energy, would you like to focus on balancing that network? Because it is necessary that the current to the network is supplied stably.
It is one of those areas - energy network stabilization support services. It builds on our knowledge of distribution a lot because it's very much related. We see another option in technologies such as e-mobility.
I admit that we also invest a lot in the cogeneration systems of the system. These investments in connection with distribution and in connection with resources bring interesting results. So, let's say it is an interesting mix of energy services and energy resources that we want to have within our group.
You’ve mentioned investing in an energy source. Would you build a steam-gas power plant, for example?
I admit that I am not an expert in the construction of resources, because these are huge investments worth billions of crowns. It's not just construction, but you also have to have fuel. That means gas, and we see what is happening in the gas market today.
Our plans reach 2030. So it's really a very long period of time. And a lot of things may happen on the market. I wouldn't say it can't happen. But I wouldn't promise it will happen.
According to your owner, Pavel Hubáček, you want to invest over ten billion crowns in rental housing within five years. This is a relatively bold investment. Where will you build and what will it consist of?
Basically, those projects are already being created. Some of them are almost complete. We use the synergistic effect of not being just an investor in rental real estate or rental flats.
I think there are quite a lot of those. But we want the whole chain to be covered. This means from the very design of the house, the architecture, its construction. We have a developer, V-Invest, who is building those flats for us. Of course, we want to be guaranteed that the product we are building will be suitable for rental housing.
Surely you know that the product which you want, let's say, to be turnover, is a bit different than when you want to move in it for five or ten years with your family. This needs to be balanced very carefully, because our customer's needs are really in the first place for us.
You said that the investments are quite large, it is really true. But on the other hand, we really believe in this segment. We think that what is generally happening in the real estate market as well as in the savings and investment market will cause more and more people to live in rental flats.
Where are you building flats?
We’re mainly focusing on Prague. We have a newly emerging project here in Prosek, which should be launched this year. It is about a hundred housing units. We are building other projects in Prague. We are building projects in Brno. And we think these are the capitals we want to focus on.
Do you want to actively acquire land? There is a lot of competition between developers.
We usually do not get involved in those projects where we would build up, say, entire housing estates. Our biggest projects are in higher hectares, for example about a thousand housing units.
Otherwise, in general, yes, we’re looking at acquisitions. At the moment, we actually perceive prices as quite high, so we haven't seen many very attractive opportunities for the past year and a half.
On the other hand, the portfolio we have at the moment, which we managed to acquire in previous years, and some of those projects are very long-term, allows us to spend energy by further developing them. We are not pushed to add new projects to this portfolio at this time.
In autumn, the Czech National Bank began to raise the price of money significantly. That means raising the interest rate. Just as an example, do you have to change the economics of the projects because of that?
Of course, we have to recalculate the economics of the projects. Because we update all budgets, all our plans, all our prospects.
On the one hand, it is necessary to remember that a lot of projects are very long-term, meaning the current interest rate either does not affect them at all or relatively little. Those projects where the interest rate depends on the market rate, are, of course, affected. On the other hand, I must say that the rise in real estate prices still significantly exceeds the interest rate as such. So, in general, the profitability of projects is usually not affected.
Instead, the whole problem of material supply, which is now occurring, is more problematic. The problem with the supply of all possible raw materials, products and the like. Unfortunately, this is also reflected in the construction industry. And that's something you can't do much with, unfortunately.
Isn't it more advantageous to borrow in euros now? Where the interest rate is close to zero?
Over the last few weeks, I have been hearing that some investment groups are thinking strategically in this regard. It is necessary to perceive that this is qualified speculation. Because if you don't explicitly have income in euros, I still see the risk of exchange rate changes.
Can you partially hedge against that?
You can be hedged. Unfortunately, hedging with what is happening on the market now is quite expensive. But it can be an interesting strategy. I admit, we don't use it personally. But you're right that I've actually heard a lot about that in the last few weeks, that a lot of groups are thinking this way.
I think that banks will respond to this by, for example, starting to offer products of this type. And we'll see what it will bring, because I still perceive the risk of exchange rate changes quite significantly. You may have the best estimate of where it may go, but you will probably never guess exactly.
And unfortunately for the exchange rate, it works in such a way that a change in the interest rate has a smaller effect on the project, but a change in the exchange rate, of course, has a relatively large effect then.