THE PEAK INTERVIEW
he view from MTR Chairman Frederick Ma's office is telling. From the 33rd floor of the IFC building it looks across Victoria Harbour on to the massive construction site of the West Kowloon High Speed Rail Terminus and the West Kowloon Cultural District. For Ma, it is a regular reminder of one MTR'S roles in one of the pivotal infrastructure projects in Hong Kong's recent history. It is, no doubt, also a constant reminder of the headaches that come with his very particular role in Hong Kong.
Pointing out the ironic nature of the view to him, as we sit down for a chat, he offers one of his good-natured but knowing chuckles. “Oh yes, it's quite a view.”
The MTR Corporation (MTRC) is, in Ma's reckoning, one of the Hong Kong government's best financial bets. On the face of it, he has a point. The Hong Kong government owns 76 per cent of the corporation, with the rest held by a mix of institutional and retail investors.
On March 16, Moody's issued a switch in outlook from stable to negative for the MTR Corporation, suggesting that the tight linkages between Hong Kong and mainland China would mean no upward potential for MTRC. On the day of that prediction, MTRC was trading at about HK$34 per share. As of midSeptember, it was trading at about $42 per share. Had the money-losing Mandatory Provident Funds been somehow invested in MTRC, perhaps they may not have lost so much money. It's a point not lost on Ma.
Overall, revenue from MTR'S Hong Kong transport operations was up 4.3 per cent, year on year, from 2014 to 2015. From 2012 to now, MTRC shares have rocketed from HK$20 per share.
The numbers behind MTR'S performance are also remarkable, and oft repeated. There is the figure that 99.9 per cent of all MTR trains in Hong Kong are on time. The vast majority of any delays that do occur are under two minutes. Ma recites a figure to put that into perspective: “One train would go around the world 12 times before there would be a five minute delay.”
There are more numbers that Ma has at the ready. Some 12 years ago, the MTR Corporation was running 2,600 train trips per day. Today, it is 8,000. Then, there's the subject of fares: according to Ma, the MTR fare rates are currently among the world's lowest. “But people still complain,” Ma says emphatically.
Adding new stations can also be a tremendous headache, thanks in no part to Hong Kong's built infrastructure, which almost literally piles up in the narrow corridors and spaces available. Building a new MTR station in Hong Kong thus only gets tougher and tougher, according to Ma, who adds that building a new station requires the MTRC to reach out to numerous district councils and the community in which those stations are built.
The MTR'S prowess at running its network – effectively the arteries and veins of Hong Kong – is
critical to the city's day to day functioning. Indeed, property markets can move on the introduction – or planned introduction – of MTR stations. This is made apparent with a visit to the bustling streets of Kennedy Town, complete with new bars, restaurants and high-rises – all established largely in conjunction with the opening of the district's new station. The evolution of Aberdeen and Wong Chuk Hang into the more fashionable “Island South” is indubitably due to the upcoming opening of the Island South line.
T H E A R T O F E Q UA N I M I T Y Appealing to – or appeasing – the many stakeholders in the MTR Corporation is Ma's top job. And to that end he entered the position at the beginning of a year amid the toughest of situations: The 26km-long Hong Kong section of the Guangzhou-hong Kong Express Rail Link was over-budget and vastly delayed.
In April 2014, the announcement was made that the project's original target date of 2015 was impossible, due to construction related issues, and that overall costs had risen to $84.4billiom, far above the original estimates of $65b. The expected completion date was pushed back to the third quarter of 2018, and Legco issued stern rebukes to MTR. It was into this maelstrom that Ma stepped when he took the chairmanship over, back in January.
After the delays and problems with the project were revealed, Michael Tien, Legco member and former KCRC chairman said: “I really can't imagine who will be willing to take over handling this hot potato. Any sensible person would know that he would be responsible for any further delays once he takes up the job.” It was a surprising admission for Tien, who himself had left KCRC in 2006 on uneven terms.
Ma says he took on the job out of a sense of affection for the company. It's a good thing he does feel that affection, because being chairman of the MTR means extended periods in the spotlight being grilled by unforgiving Legco members. At times such as this, Ma likes to paraphrase the jaded optimism of Winston Churchill: “The pessimist sees opportunities as challenges, and the optimist sees challenges as opportunities.”
The ultimate deal with Legco saw the government provide the projected funding, in exchange for two special cash payouts to shareholders.
The deal over the West Kowloon station has the hallmarks of Ma's elegant personal style, and a manner of deal making that seems to square circles. When the MTRC was first in talks to merge with KCRC in 2006, Ma, at the time Hong Kong's
Secretary for Financial Services and the Treasury, was able to neatly get around political concerns, while keeping true to the original point. The KCRC had been valued at $25billion, but government investment was $66billion. “If we had decided to sell KCRC, we would have been accused of selling assets on the cheap,” Ma recalls.
In the end, KCRC became a rental company, receiving $2billion a year for use of its lines and equipment, along with an initial payment of $4b. “It was a political bomb. I came up with the formula for defusing that bomb.” It is this type of far reaching deal that suits Ma. “I took a lot of satisfaction and personal pride in engineering this merger,” he says.
That the MTRC has garnered its deal with the government and is continuing its drive to complete the high speed rail connection to Shenzhen and then Guangzhou is down, at least in part, to Ma's unique brand of personal charm.
FUTURE THREADS Should you find yourself on the London Tube or New York subway, you may spot Fred Ma, checking up on their respective services, just to make sure his beloved MTR always stays in front. At least, he says he does. In person, he certainly enjoys comparing the service standards of the MTR to that of other intracity rail services. It's a topic he loves to bring up.
But in those cities you might also find yourself riding a train owned by the MTRC. Over the past few years, the company has been quietly turning itself into an international concern, though Ma keeps saying that MTRC'S birth certificate is in Hong Kong. That said, the company owns subsidiaries and rail services in the UK, Sweden and Australia, along with interests in Shenzhen, Beijing and Hangzhou. MTRC'S revenue from international subsidiaries and holdings were $12.5billion in 2015, while revenue from Hong Kong transport operations was $16.9 billion in 2015.
That may grow in future, though Ma maintains that the MTRC remains firmly rooted in Hong Kong. He sees the One Belt, One Road initiative as a particularly important part of the future of Hong Kong, and potentially of the MTRC as well. As a man privy to so many discussions related to China's future, Ma is certainly one to know. “It [One Belt,
One Road] creates a lot of business opportunities for Hong Kong, in capital markets, infrastructure, ports, airports - things that Hong Kong is really good at.”
During our interview, Ma cheerfully announces that he will be going to Kazakhstan the following week with Hong Kong's financial secretary, John Tsang, “to check things out – maybe to sell the services of the MTR”. It was in Kazakhstan in 2013 that Chinese president, Xi Jinping, announced the One Belt, One Road initiative, and so this comes as no surprise. Many of the proposed rail and highway routes linking China to Europe pass through Kazakhstan, particularly the former capital Almaty. Kazakhstan's oil and gas reserves are enormous, and China's push into the former Soviet territory also includes the huge agricultural spaces there.
Though Ma remains cautious on the subject of international expansion, repeatedly insisting that the MTR'S main loyalty is to Hong Kong, that doesn't rule out new markets altogether. “Our birth certificate is Hong Kong, but our passport is global,” Ma likes to say. He adds that MTR'S board has set a limit to overseas expansion, and while he refuses to say what that is, he does say that, to date, MTR has invested about 34 billion yuan into mainland China. “So far, expansion overseas hasn't taken away a lot of our resources. We use local people to run JVS, and we hire local people to run [our] operations. We
don't spread ourselves thin.”
One of the growth-oriented policies that Ma has put in place is the new MTR Academy – a scheme designed to help increase the professionalism of urban rail operators and managers. But while the scheme is certainly set to be a benefit to the MTR, in that personnel can be recruited from this academy, it will also serve as an entry point for the MTR in its dealings overseas.
Ma foresees that the MTR Academy will entice rail companies, particularly in emerging markets along the One Belt, One Road corridors (he uses Kazakhstan as an example) to send managers and operators for training. Those people will then go back with positive views of the MTR. As contracts come up for bid, there will be an international pool of talent inclined to work with the MTR. “Networking,” Ma says, “is very important.”
Whether Kazakhstan – or other One Belt, One Road investment destinations – are on the mind of the MTR Chairman, he is not ready to divulge. Mistakes happen, after all, and foreign investments can be costly mistakes. “We want to make sure we can walk before we can run, particularly in this company. We are 76 per cent owned by the government, so we have reputational risk as well as a fiduciary responsibility to our shareholders.”
Of course, the MTR'S own expansion plans in Hong Kong are far from finished. The West Kowloon
High Speed Rail terminus and line are due for completion in 2018, and there are several lines and stations to complete as part of the government's prior railway plans. In 2014, the Hong Kong government produced its Rail Development Strategy, covering up to 2031, updating the previous strategy document from 2000. Seven new lines are mandated for the MTR, and according to Ma, the MTR is currently studying three. “There's no shortage of railways to be built in Hong Kong,” he says.
Currently, the government is considering expansion of housing in areas near the border with Shenzhen, as well as expansion around Kowloon East, the long-awaited proposed new central business district for Hong Kong.
F I N D I N G T I M E TO S M I L E For his part, Ma now finds comfort and joy playing with his first grandchild. “As grandparents, we have all the joy, but not the responsibility,” Ma says with a smile. Certainly, his responsibilities are already quite big. Ma held eight directorships before stepping up to be MTR chairman, ultimately dropping four of those to focus more of his time on MTRC. He still retains a seat on the global advisory board of the China Investment Corporation, China's sovereign wealth fund, along with Joseph Yam, the only other person from Hong Kong on the board.
He also retains a keen interest in young people, as evidenced by the professorships he holds at three Hong Kong universities, as well as being the honorary president of the Hong Kong Special Schools Council, which aims to improve support services for students with special education needs.
In the end, Ma seems especially at home with his beloved MTR. He just wishes that a few more of his millions of customers would appreciate the job that the company does: “I get a lot of letters of complaint; seldom do I get a compliment.”
If you've ever taken the MTR in Hong Kong and liked the service, be sure to thank Fred Ma the next time you see him. He'll appreciate it.