Tan Sri (Dr) Francis Yeoh Sock Ping, Managing Director, YTL Corporation, Malaysia, speaks about his strategy on how to be successful.
In order to accelerate repayment of their capital, the major global lending institutions build in what I call a 'hedge.'
Among other banking practices, in order to mitigate their risk, they typically charge higher interest rates on Asian loans. These practices drive up costs considerably, and, of course, reduce the profitability of any project.
The second strategy is 'build for less, so you can borrow less.'
So when, in the early Nineties, we sought capital funding to build our first two power plants in Malaysia, we first designed a plant that was 40 per cent less to build. Remember -- after all, we're building engineers who understand construction from the ground up, know our market, and maintain subcontractors we can count on for reliability.
Then we went to Malaysian banks and borrowed in Malaysian currency. In fact, we were the first company in Asia to fund an IPP in this way, and set a new industry standard.
Have ready cash handy.
The last three years have taught me that you just cannot sit still. Global competitiveness has shaken every paradigm. Every parameter of business philosophies that you think you can rely on, or hang on, has been shaken to the core.
Because of IT and changing demographics, change is so demanding at the customers level. If you do not have all the wherewithal -- the intellectual capital, the physical capital, and the monetary capital to invest or acquire at the right time and the right opportunities -- you may miss an important window to make a quantum leap and that opportunity may not come again.
Take, for example, our growth in the power business. We did not want to be a hostage to Malaysia's economic cycles. We were confident that we could replicate globally what we had done in Malaysia. We knew how to work in a regulated business. And we had the capital.
Given these factors, it was evident that only mature economies like the United States, the UK and Australia could offer plentiful business. And then came Enron. The upheaval presented the perfect opportunity to acquire our business in Australia and the UK.
It is no good not having the capabilities to take advantage of the cycle when there is upheaval. You must have the cash and support from the cities of New York or London. When you want to raise capital, it has to be there.
There's no magic figure about how much cash you should have. Many countries regulate the amount you can use from the country's reserves for strategic acquisitions. Basically you can gear $1 billion ten times in the right kind of business for regulated assets.
So if we have $6 billion in cash, theoretically we could acquire $60 billion worth of assets. In the end, the amount of cash you keep handy depends on your vision and capability: you will want to tailor your cash to the ability to strike at the right time.
If you gear too little, you restrict yourself, if you gear too much, you are vulnerable to the environment.
Buy currencies cheap.
When we bought Wessex and ElectraNet, we bought those assets at very low rates. The Australian dollar was cheaper -- US 0.53 $ was equal to an AUS $ -- and now it is 75 something.
And the pounds we bought at the time were also cheap. The pound to the US dollar was at 1.5, and now it is hovering around 1.9. This means that you have bought an asset that has appreciated even in currency terms.
It is no longer just the asset, it is the currency. When you go global, it is the currency that becomes an important aspect, the timing when you buy that asset becomes very important.
We do not suffer the tyranny of the minority.
The leader represents the values of the organisation, and people join the organisation because of what the leader stands for. We will never go into the gambling business no matter what, because we believe that gambling destroys the social fabric of the family. It makes people become criminal out of desperation and makes them unproductive.
We do not like corruption as a way of life, so we reward well, we pay well so that you don't have to be corrupted. But you have got work for yourself, we are not going to mollycoddle you.
You have to learn to think and to understand that when you have to fight, you must fight for your neighbours, fellow staff and the customer.
The author is Managing Director, YTL Corporation, Malaysia.
Published with the kind permission of The Smart Manager, India's first world class management magazine, available bi-monthly.