Leng Chan’s business strategy stands the test of time

Tan Sri Quek Leng Chan of Hong Leong Group Malaysia built a good amount of his fortune in deals that were concluded outside the country.

By the 1980s, his business empire had included a controlling stake in Dao Heng Bank of Hong Kong, which he sold to Singapore’s DBS Bank for US$5.4bil (RM16.7bil) in 2001. At that time, the sale of Dao Heng Bank was valued at 3.5 times book value – the highest price ever paid for an Asian bank.

Five years later in 2006, he sold his 40% stake in air-conditioner manufacturer OYL Industries Bhd to Japan’s Daikin Industries Ltd in a deal worth RM7.61bil.

According to reports, the deal drew plaudits, as the price tag was 21 times OYL’s estimated earnings.

In 2010, Mitsui Sumitomo Insurance Co Ltd of Japan took a 30% stake in Quek’s Hong Leong Assurance Bhd at a record 6.5 times price-to-book ratio based on a merged valuation of both the life and general insurance businesses.

These were classic examples of Quek’s astuteness and business philosophy – buy low, sell high and never fall in love with any of your businesses.

It’s worth noting that Quek seemed to have developed Hong Leong Group independently.

“A great deal of his success came without assistance from the Government. He did not win any privatisation or mega-projects from the late 1980s and 1990s era,” recalls an executive.

As the economy grew, the tycoon expanded into more sectors through acquisitions and diversification.

From a trading company, he set up a few companies to engage in the manufacture of building materials.

He ventured into financial services in the 1970s, followed by banking in 1981 after the acquisition of Dao Heng Bank, and semiconductors in 1984.

In early 1994, in an RM1.1bil deal, Quek took over MUl Bank Bhd from founder Tan Sri Khoo Kay Peng when Datuk Seri Anwar Ibrahim was Finance Minister.

He bested Berjaya group’s Tan Sri Vincent Tan, who had also made a bid for the bank, which was renamed Hong Leong Bank Bhd (HLB).

Later in the same year, HLB was listed, returning much of Quek’s original investment.

About five years later, when his prized banking operation was in jeopardy when HLB was excluded from the original list of anticipated six anchor banks for the country in 1999, Quek persevered, lobbying intensively for anchor bank status for his bank and succeeding when the Government expanded the list to 10.

HLB took another step forward when in 2011, it bought EON Bank group – a corporate exercise that elevated it to become the fourth-largest Malaysian bank by assets. The acquisition, which was delayed by several lawsuits, was priced at a relatively low 1.4 times book.

There are those who think that Quek could be open to a merger or stake sale of his bank.

“While the environment for banking is getting a lot tougher, as a shareholder, he cannot really be involved in running the bank.

“There is also the uncertainty of whether the ‘grandfather rule’ on his ownership in the bank would be extended to the next generation,” points out the executive.

This is an unwritten rule that’s applied to Quek and two other bankers, giving them exemption to the current regulations where no individual is allowed to hold more than a 10% interest in any local financial institution. Quek controls 64.4% of HLB through Hong Leong Financial Group Bhd, where he has a 77.31% stake. Going by Quek’s principle of not having any sentiments in business, nothing can be ruled out.

Things did not always go the tycoon’s way, however.

Quek lost out to MUI’s Khoo for control of Central Sugars Bhd. Both businessmen had bought a 25% stake in the-then listed sugar refinery.

Khoo wanted the company for himself and bought an additional 7% from another tycoon, Robert Kuok, and eventually Quek was forced to exit the company.

Later through Hume Industries Bhd, he also attempted but failed to take over Multi-Purpose Holdings Bhd (MPHB) – a move that would have given him a chance to diversify into the plantation sector. MPHB, a company linked to MCA, owned Dunlop Estates Bhd, one of the top plantation companies then.

Another of its prized asset was Malaysian French Bank (which later became Multi-Purpose Bank). Dunlop Estates was subsequently sold to IOI Corp Bhd in 1989, which subsequently benefited from the plantation and property play.

Nevertheless, Quek is very much a success story anyway one looks at it.

He is known to run a tight ship and those who don’t measure up are duly demoted.