Issue cover-dated February 20, 2003

A Malaysian Tycoon On the Prowl

Francis Yeoh and the company he leads, YTL Corp., represent a new breed of Malaysian entrepreneurship, focused on maximizing returns and building shareholder value. Aided by its strong cash flow, YTL has now embarked upon a string of overseas acquisitions

By S. Jayasankaran/KUALA LUMPUR

AT A LONDON briefing to stoke international interest in Malaysian conglomerate YTL Corp. last year, Francis Yeoh began with a slide showing the share-price movements of America's General Electric over 18 years. The second slide featured a similar take on YTL. The third was a shot of Yeoh and Jack Welch, the much-acclaimed former chieftain of GE, happily mugging for the cameras. Lest anyone still missed the point, Yeoh, whose family owns 47% of YTL, tossed in the clincher: "If you had invested $10,000 in YTL 18 years ago and held on, you would have had over $400,000 by now."
Meet Francis Yeoh Sock Ping, 48, a smooth-talking opera buff who is YTL's managing director. The initials are from the name of his father Yeoh Tiong Lay, who turned his modest construction business over to his son in 1978 when the British-trained civil engineer was just 24.
Francis Yeoh used his business savvy and connections to build YTL into an infrastructure-and-power conglomerate with a market capitalization of 5 billion ringgit ($1.3 billion). Now with close to 5 billion ringgit in cash reserves and an unblemished international credit rating, Malaysia's master of the sound bite--"We build First World infrastructure at Third World prices"--is stepping out globally.
Yeoh's latest growth strategy is overseas acquisition--power distribution in Australia and a water utility in Britain--using profits made in Malaysia to rebrand YTL as a global infrastructure company. In many ways people like Yeoh epitomize an expanding group of Malaysian businessmen that has come of age. Long overshadowed by foreign multinationals, local companies now have the capability and the financial heft to outbid their bigger foreign brethren for assets up for grabs anywhere in the world.
In YTL Corp.'s case, some of those opportunities came courtesy of Enron's collapse in the United States and the retreat of American power companies from overseas investments. YTL Corp.'s 6.89 billion ringgit acquisition of Britain's Wessex Water last year, for example, came about after Enron put Wessex up for sale. "He's looking for regulated assets in developed countries," says a Kuala Lumpur banker who knows Yeoh well. "You might say he's preparing for a post-Mahathir administration."
The reference is to Yeoh's close links to Prime Minister Mahathir Mohamad, who is expected to retire this October. But to tie Yeoh's ascension too closely to political patronage would be unfair and inaccurate. Although he made his money from a key break in 1992, Yeoh hasn't frittered away his company's money on grandiose schemes. And unlike other Malaysian businessmen handed similar breaks, he hasn't overreached himself either.
Indeed, he has created shareholder value, a fact that Yeoh, never one to sell himself short, is fond of emphasizing. "Over the last 10 years, we delivered over 30% in compounded growth in our earnings per share," he says. "That's pretty decent by any standards."
But even Yeoh would acknowledge that his big break came in 1992 when Mahathir, fed up with power outages, turned to the private sector and gave YTL Corp. the first licence to build, operate and manage two gas-fired power plants in Peninsular Malaysia. It effectively broke the monopoly held by national utility Tenaga Nasional and, though there are now seven others in the business, Yeoh's pioneer status allowed him to cut a fabulous deal.
Yeoh hammered out a "take or pay" agreement with Tenaga whereby the utility had to take up 72% of YTL Power International's output at 15.2 sen (4 U.S. cents) per kilowatt hour whether the utility needed it or not--for 21 years. And the utility had to pay up every two weeks. Subsequent agreements by Tenaga with other operators saw the price dropping to 11.5 sen per kilowatt hour. Listed YTL Power is 60% owned by YTL Corp.
Yeoh also managed to get the so-called "brownfield sites." These were locations where Tenaga had meant to put up plants anyway so incoming gas lines and outgoing power lines were already in place. It cut his costs sizeably and put him at an advantage over competitors who came later--they were given greenfield sites, which meant they had to start from scratch.
But Yeoh also provided the financial blueprint that other Malaysian power producers followed. Rebuffed by international financiers, who demanded risk premiums, he turned to the government, which helped him secure 100% ringgit financing. It allowed enormous cost savings and sustained YTL, and every local power producer, when the ringgit depreciated 34% against the U.S. dollar after the 1997 Asian financial crisis. Malaysian power generators enjoy some of the cheapest gas supplies in the world because state-owned Petronas subsidizes them. According to analysts, YTL's cost is around 4-6 sen per kilowatt hour compared to an international average of 7-8 U.S cents per kilowatt hour.
The foray into power vaulted YTL into the big league. For the year ended June 30, 2002, YTL Corp. made a net profit of 362 million ringgit on the back of 2.5 billion ringgit in sales. This compares to 44 million ringgit in net earnings in 1994 before contributions from power operations began flowing.
In a recent report CLSA Securities in Kuala Lumpur expects YTL Corp.'s net earnings for the year to June 2004 to hit 486 million ringgit on sales of almost 4 billion ringgit, due, in part, to YTL's overseas buys. That, said CLSA, translates into "compounded annual growth in earnings per share of 16.5%." Yeoh thinks he can do better. "We're aiming for 20% annual growth from now till 2020," he says matter of factly. "That should make us close to a 200 billion ringgit company by then."
Much of Yeoh's success can be ascribed to sheer chutzpah, which seems to grate on many other Malaysian businessman. Certainly, he has no qualms about brash self-promotion. The walls of his downtown penthouse offices are lined with pictures of himself with big-wigs like former U.S. presidents Bill Clinton and George Bush, South Africa's Nelson Mandela and Chinese Prime Minister Li Peng, to name a few.
Even his allies would acknowledge that he hasn't followed the niceties usually observed in multiracial Malaysia, where an affirmative-action policy designed to benefit the country's Muslim Malays has existed for over three decades. Few businessmen would dare go head to head with ethnic Malay business interests without using Malay frontmen--a common practice in Malaysia.
But Yeoh infuriated officials from Tenaga, considered an ethnic Malay, if state-owned, company by pushing through the 1993 agreement. Nor was he above invoking the premier's name in doing so, say Tenaga officials still miffed over the deal. And all this from an ethnic-Chinese businessman who wears his born-again Christianity on his sleeve: His house, a sprawling mansion complete with personal art gallery in the leafy suburb of Kenny Hills in Kuala Lumpur, is called Genesis.
Yeoh has never shied away from going straight to the top if he sees opportunity. In 1996, he was offered a $2.6 billion deal that would have given YTL 80% of Gordon Wu's Hong Kong-based Consolidated Electric Power Asia, a deal that would have made him Asia's biggest independent power producer. Needing financing in a hurry, Yeoh turned to the government for a 2 billion ringgit loan.
He did it in audacious fashion, going to see Mahathir while the annual assembly of the premier's United Malays National Organization was sitting. He got the financing but given the occasion--a meeting that non-Malays can observe but not intrude into--he was criticized. Columnist Kadir Jasin, writing in the Umno-linked The New Straits Times daily, said his behaviour was "in bad taste." Not to be outdone, Yeoh complained to Anwar Ibrahim, the then deputy premier, that Kadir was being "racist", according to an Umno official who was present.
In the event the CEPA deal fizzled out but Yeoh has been unrepentant about his hard-charging style. In 1997, at the height of the Asian financial crisis, YTL bought choice Kuala Lumpur real estate for 332 million ringgit from listed Taiping Consolidated, an ethnic Malay company stricken by the crisis. True to form, he bought it openly, without recourse to ethnic Malay nominees.
Umno officials say that Mahathir would have preferred a more oblique approach to avoid offending Malay sensibilities but, in the event, the purchase raised little fuss. Yeoh underplays his blunt business tactics saying, "On balance, you will find I have more friends than detractors."
Still, the buy, at bargain-basement prices, raised YTL's profile as it added Lot 10, a glitzy Kuala Lumpur shopping mall, the JW Marriott hotel and a huge land bank in Kuala Lumpur to the company's property portfolio. It will also give the conglomerate work going forward. Analysts estimate that the land bank, known as Sentul Raya, will have a gross development value of almost 7 billion ringgit over the next eight years.
Today, the group has five listed companies including YTL Corp. and YTL Power. The others are YTL Land, YTL Cement, a ready-mix supplier of cement, and YTL e-Solutions, an information-technology company that leverages off its dealings with the rest of the group. The five companies have a combined market capitalization of close to $6 billion.
Other high-profile ventures include a 40% stake in the 2.4 billion ringgit Express Rail Link, a high-speed railway connecting Kuala Lumpur to the Kuala Lumpur International Airport. It was built for $11 million per kilometre, which compares very favourably with the loss-making Putra, an urban light-rail-transit operator in Kuala Lumpur, which was constructed for $49 million per kilometre.
And Yeoh delights in boasting about its cheap fares. At $9.20 a trip, the express, which takes 28 minutes to complete a 57-kilometre trip, boasts the cheapest fare among airport expresses--comparable fares range from $12.80 in Hong Kong to $22 at London's Heathrow airport.
There are also "national service" projects that Yeoh embarked on not so much for profit but to please Mahathir. They include a 30% stake in Eastern & Oriental Express, a plush train service that runs from Singapore to Bangkok, modelled on Europe's fabled Orient Express. Others include a gourmet restaurant hacked out of a mangrove swamp on Langkawi island, one of Mahathir's favourite destinations, and the branch campus of Nottingham University in Kuala Lumpur. "All these things put Malaysia on the map," says the banker who knows Yeoh.
Finally, there is the lavish Pangkor Laut Resort, built on Yeoh's eponymously named 120-hectare island off Peninsular Malaysia's west coast. Every year, the businessman throws a bash there that attracts international dignitaries and is usually graced by tenor Luciano Pavarotti who, insiders say, is tempted along by fees of over 2 million ringgit a pop.
For all his seeming hubris, it's been his later acquisitions and their timing, which have won Yeoh kudos. The businessman went head to head with international bidders and won Wessex Water for $1.8 billion. In contrast, Enron itself bought Wessex in 1998 for close to $2 billion. And the debt-equity ratio structured by Yeoh to finance the deal made it self-financing simply from Wessex's ample operating cash flows ($184 million a year plus $79 million a year in dividend payouts).
Another target is Midlands Electricity, which transmits power to 2.3 million customers in Britain, and was put on the block last August by its U.S owner, Aquila, to pare debt. YTL Power and British company Scottish and Southern Energy were shortlisted as final bidders, with bids coming in at close to 1 billion. But the deal could be off as Aquila, according to news reports, considers the bids too low.
The withdrawal of U.S. power and water companies from Asia and Europe coincides with a new push for deregulation of utilities in countries like Singapore, Thailand and the Philippines. Given its strong balance sheet, that makes YTL Corp. a formidable player. "If we structure it right, we can do about $900 million worth of acquisitions a year without stretching our balance sheet," says Yeoh.