World-class products at Third World prices

  • Business
  • Saturday, 15 Feb 2003


In a wide ranging interview with deputy group chief editor WONG SULONG and reporter LIAU Y-SING, Tan Sri Francis Yeoh talked about the strategic directions of the YTL group. Below are extracts of the interview, which have been updated. 

Father and son - Tan Sri Yeoh Tiong Lay (left) and Tan Sri Francis Yeoh.

WHEN reporter Liau Y-Sing (now with Reuters news agency), photographer Samuel Ong and I were ushered into the office of Tan Sri Francis Yeoh, he was in a happy mood. 

He had just been informed that his eldest son, Keong Yeow, had gained admission to the Imperial College of the University of London for an engineering degree. 

“He had three A's for Physics, Maths and Business” Yeoh said proudly, as I extended our congratulations. 

So the first of a new generation of Yeohs is equipping himself to take over the YTL business empire that has grown, in a span of 50 years, from a small Malaysian construction company to a global infrastructure and utility group. 

Francis Yeoh, representing the family, is one of five Malaysians listed on Forbes' “Billionaires List.” 

He had been spending a lot of time lately in Europe and visiting the newly acquired Wessex Water Ltd in Britain, which was acquired from the bankrupt Enron. 

The Wessex acquisition was a corporate coup, and sparked a lot of interest, curiosity and envy about YTL. 

“Who the hell is YTL?” asked one English newspaper when it was announced that YTL had pipped a number of better-known international bidders for Wessex. 

I asked Yeoh whether he was pleased with the purchase. 

“Very much so. It had many more upsides than we thought it had. The Wessex management is with us and they are very pleased with the new owners like us. They're one of the best water companies in Britain and we want them to be the best.” he says. 

Right now, YTL is looking whether Wessex could do better with its capital expenditure. The water utility spends about RM5OO million annually on capital expenditure, and Yeoh feels there could be big savings in this area, without sacrificing quality and standards. 

“They will benefit from our ability to manage capital cost very efficiently because YTL in Malaysia has been able to build power plants 40 per cent cheaper.” 

Yeoh is very proud of the water processed by Wessex. He flies some of the water to Malaysia and serves it at YTL's hotel outlets that include the Kuala Lumpur Ritz Carlton and the Marriott. 

“You can drink Wessex water from the tap, he says.  

Therefore, Yeoh sees opportunities for the YTL group in water and sewerage projects in Malaysia. 

I asked him about his visit to Europe.  

“There are many European companies which own regulated assets in Britain. Many European companies are in trouble because they have over expanded and (are) over geared. So they might be selling some of their assets to reduce debt. There might be some interesting British assets they might be thinking of disposing of,” he says. 

I asked him whether YTL is looking at utility projects in China and India, where the need is obviously huge. 

“The time is not right,” Yeoh says. These countries, Yeoh pointed out, still had a problem appreciating the fact that the investor had to be allowed to make a reasonable profit from his investments; not forgetting that the bankers and other financiers also need to be assured of a reasonable return. 

Regulated businesses normally are capital intensive and have a long gestation (period); the government must ensure that the terms of the agreement do not change during the life of the contract. 

While the demand is huge in both China and India, the fact remains that most of the population in these countries are unable to pay for these services.  

Yeoh says: “For an investor to do well in these countries, he must be able to do world class utilities at Third World prices. We have succeeded in doing this in Malaysia, but for China and India, you would also have to consider the currency risks.” 

“In one project in Thailand, the Thai government guaranteed the baht at 26 to one US dollar for the duration of the concession (the baht is now 42 to the US dollar). Are the governments of China and India willing to guarantee that kind of risk?” he asked. 

We returned to YTL's businesses in Malaysia. The YTL group is involved in construction, property development, hotels, and power generation and most recently, in the construction and operation of the Express Rail Link (ERL) between Kuala Lumpur and the KLIA. 

Since YTL has so much expertise in operating regulated businesses, would it be interested in the construction and operation of toll roads in Malaysia? 

“I reckon we are a bit late in this business,” Yeoh says. “The North-South Expressway (operated by PLUS) is a fantastic business, but where else can you build a toll road nowadays? But toll roads in Europe are worth a peep.” 

We turned to how the Yeoh family manages the business, and how decisions are made. 

Yeoh says: “My father is chairman of YTL Corp, and I am managing director of the parent company and its subsidiaries. My (four younger) brothers and (two) sisters are executive directors.” 

“One day, I presume I will take over the chairmanship when my father retires, and one of them will be managing director. But they are being put to the test, like I had to when I joined the family business. 

“So while the Yeoh family provides the entrepreneurship, we have a set of management that is non-family, all of them professionals. They sit in my 'Cabinet'.” 

“There are 30 of them including my family members and we meet every Monday. To an extent you can say we govern like ministers and the results are there for you to see – we produce world class products at third world prices, and we do it year after year,” he says.  

Partly because of their Christian upbringing, the Yeohs are most reluctant to retrench staff. 

Yeoh says: “When you retrench somebody, it's not one person that is affected. He or she has a family and it's heart wrenching to see the lives of so many people changed for the worse. It's a horrible feeling to have to sack.” 

“That's why we make sure the YTL companies do not over hire. That's also the reason why YTL is moving away from cyclical businesses to regulated business, and even if it's a cyclical business, like cement production, we organise our operations in such a way that we minimise the need to retrench. 

“So I may be soft in the heart, but I am not soft in the head,” said Yeoh. Either by design or luck, the Yeoh family seems to have the magic touch, “ says Yeoh.  

When YTL got the award to build the first independent power plant at Paka in Trengganu, the company took a ringgit-denominated syndicated loan, instead of the traditional US dollar-denominated loan. 

When the Asian financial crisis hit in 1997, and Malaysia had to peg the ringgit at RM3.80 to the US dollar, YTL did not suffer the ringgit's sharp depreciation. 

The Malaysian economic recession also provided YTL an opportunity to buy cheaply into Taiping Consolidated Bhd (now renamed YTL Land) that owns the upmarket shopping centre Lot 10 and the adjacent Marriott Hotel, and the Sentul Raya property project, all in Kuala Lumpur. 

And earlier this year came the Wessex acquisition. The Christian in him would not allow him to take any credit for any of these. 

“I like to say categorically, and you must quote me, sometimes I like to take the credit. But I think God writes the scripts and I am a wiggly willing pencil.” 

After 90 minutes, it's time to go. “Tan Sri, could we take a picture of you and your dad before we go? I don't think I have seen a picture of both of you for many years.” I said. We walked through the connecting door. 

Tan Sri senior felt he wasn't dressed for the occasion. But the gentleman he is, he obliged. 

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