Grim tales of owner-driven companies
The owners have the tenacity to come back when the chips are down. They spot trends way ahead of others and will invest in ventures that others would not.
THE sprawling but under-worked business empire of Tan Sri Khoo Kay Peng is a grim reminder of risks that run heavy with business organisations driven by entrepreneurs.
Generally, businesses driven by entrepreneurs tend to perform better than those managed by a team of professionals. However, when the entrepreneur himself is no longer in the driver’s seat without a set of professional managers and diverse shareholdings, the empire starts to wobble.
That is the case of Khoo’s Malayan United Industries Bhd (MUI) and a few other owner-driven companies on Bursa Malaysia.
In good times, owner-driven companies tend to do better than those managed by professional managers. Owner-driven companies tend to take risks and together with them come rewards.
The owners have the tenacity to come back when the chips are down. They spot trends way ahead of others and will invest in ventures that others would not.
Take, for instance, Press Metal Aluminium Holdings Bhd, which is driven by Tan Sri Paul Koon. Today, it is a highly successful company in the business of aluminium smelting simply because it saw an opportunity in Sarawak some 15 years ago.
In the smelting business, a cheap source of electricity is the key to determining low production costs. Koon saw an opportunity in the Bakun Hydroelectric Dam project when others shied away from it.
Big names from China and the Middle East announced major plans to set up aluminium smelting plants in Sarawak to take advantage of the cheap electricity from Bakun in mid-2000.
However, nobody was prepared to part with their money to build an aluminium plant until they were certain about the supply of electricity.
Press Metal set up its first aluminium smelting plant in Sarawak in 2007, four years before Bakun was completed. Koon laid the groundwork to tap into the excess power supply from Bakun.
At that time, Sarawak’s electricity demand was only 600MW, while Bakun’s capacity was 2,400MW.
It was only a matter of time before Press Metal was able to tap into the surplus and cheap energy in Sarawak. The strategy paid off, and today, Press Metal is among the top30 stocks on Bursa Malaysia and among the world’s largest producer of aluminium.
The rise of companies such as Press Metal is a sharp contrast to the dire state of affairs for the companies under Khoo.
Since the late 1990s, Khoo’s flagship company, MUI, has been viewed as an entity with ample potential but no driver to sweat the assets.
MUI has three listed companies in Malaysia and is the single largest shareholder in UK-listed Laura Ashley Ltd. The business empire stretches from Malaysia to London.
It is in property development, food products, finance, fashion and retail. Apart from Laura Ashley, another famous name under MUI is Metrojaya.
The parcels of land in Kuala Lumpur and London and a chain of hotels under MUI easily make it one of the most asset-heavy-butunder-performing listed companies on Bursa.
Khoo hardly appears in public and investors have no idea on the future direction of the company. This is a dampener for share prices of the companies under his control,
Even when there are reports of suitors for MUI, the stock hardly draws any attention.
There are several other large listed companies on Bursa Malaysia that have not put in place a succession plan, although there appears to be one on paper.
Very few have adopted the Genting model. The late Tan Sri Lim Goh Tong has left the company in the hands of his son, Tan Sri Lim Kok Thay.
Kok Thay this week affirmed that “he had reasonable grounds” to believe that he is in control of 42.62% of Genting Bhd through a trust. The announcement to Bursa Malaysia came amidst legal suits that have been filed by his nephew over the shareholding of the group.
One of the biggest listed companies without a clear succession plan is Tan Sri Teh Hong Piow’s Public Bank Bhd. The financial institution is worth RM79bil and Teh does not have a single family member in the bank.
A board comprising experienced bankers and corporate personalities manage the bank. However, the shareholding is concentrated in the hands of Teh, who holds more than 22%.
The growth of Public Bank is largely attributed to Teh’s hands-on approach. He is prudent and runs a tight ship. Going forward, will the bank continue to grow under a set of professional managers when the shareholding is concentrated in the hands of an individual?