BTO: Learning from experience

Business Times - 28 Mar 2009

Learning from experience

Jeffrey Cheah of Sunway Group is not unduly worried about the current economic crisis because he's been in some pretty uncomfortable financial situations in the past. And survived them all. By S Jayasankaran

 

ON THE 18th floor of Sunway Tower is a balcony running right around its circumference, the better for visitors to gawk at a development that's been hewed out of an 800-acre gash of tin mining land over the last 35 years.

 

'There's RM4 billion worth of work right there,' muses Jeffrey Cheah, and then grinning, he adds: 'That's not bad considering I started off with RM100,000 in 1974.'

 

Meet Jeffrey Cheah Fook Ling, 63, the driving force behind Sunway, a township that's become Kuala Lumpur's second largest tourist attraction after the Twin Towers.

 

'No offence to Singapore but this is what you mean by an integrated resort,' Mr Cheah says. 'We have houses, malls, shops, restaurants, hotels, lakes, two universities and a hospital and it's only 20 minutes from Kuala Lumpur. And we have a theme park laid out over 80 acres.'

 

The founder and chairman of the Sunway Group used to shun the limelight but now gives interviews, seemingly content with the niche he has carved out in Malaysia's business world.

That he is wealthy is clear: A Rolls-Royce is parked outside the tower while his aides say there is another back home together with a Lamborghini, a Bentley and a Mercedes.

 

Then there is his multi-million dollar wine cellar fashioned out of an actual limestone cavern in Ipoh, north of Kuala Lumpur and a town where he is building another Sunway-like development. The global economic crisis has pushed his net worth down with the share prices of his two listed companies falling close to 40 per cent over the space of a year. But even at those depressed prices, the businessman is valued at close to RM500 million while both the companies still turn a profit.

 

And he has strong shareholders. In 2000, the Government of Singapore Investment Corporation (GIC) put in 'a couple of hundred million' to take up a 48 per cent stake in his shopping centre and hotel, plus another 20 per cent in the listed entity. It is still a shareholder, and according to Mr Cheah, 'should be very pleased with the investment'.

 

Mr Cheah does not seem unduly worried about the current crisis because he's seen worse.

'In 1987, we had Sungei Way Holdings which was listed and I remember it was a very bad recession,' he recalls. 'We had RM33 million in paid-up capital and we lost RM32 million.'

Almost wiped out

 

So he told his bankers the truth. 'I went to Hongkong Bank and told the guy the truth, that I was almost wiped out, but I'd cleaned up and I knew what to do to turn things around,' he says. 'I asked for a fresh RM5 million loan. With that I told him I could make RM5 million in 1988; I made RM9.5 million, actually.

 

'There I learnt what not to do,' he continues. 'At the time, I'd gone into all sorts of things, into leasing which was for the banks and not for people like me. From there, everything went fantastic until 1998. I should have known better because in early '93, when everything was booming like crazy, I'd already started warning my guys to be careful. But in the euphoria, everyone forgot the lessons, including me, and we started to gear up. We lost our sense of caution, our perspective.'

 

The Asian financial crisis almost wiped him out again except the numbers had now become colossal with group debt exceeding RM2 billion.

 

'It was ridiculous but borrowing was very easy and everyone succumbed, even us,' Mr Cheah emphasises. 'And most of our debt was without any collateral, which meant that I could have walked away if I wanted to be a rascal.'

 

He has abiding memories of the period and it taught him who his friends were. 'The foreign banks were the worst culprits, the proverbial people who take away the umbrella when it starts raining,' he recalls. 'I learnt a good lesson. One head of a foreign bank - that's doing pretty badly now - came to me and said ... how come we weren't their clients and insisted on lending us US$150 million.'

 

'I said sure,' Mr Cheah says. 'But when the trouble started, they were the first to ask for the money back. We paid it back but I never did business with that bank ever again. I never forget.'

 

The group was hit from all sides. 'The ringgit had been stable against the US dollar at 2.5 to the dollar for almost 10 years, maybe more, and so a lot of us went into foreign borrowing,' he remembers. 'We had a Eurobond and the ringgit dropped almost 40 per cent. Then of course interest rates shot sky high, 20-23 per cent.'

 

What did he do? 'An entrepreneur does not panic, he has to show confidence at all times,' he says matter of factly. 'Without that, no one will believe you. Creditors wanted to sue but I asked them to talk and made myself available at all times. We cleared the crisis without a single lawsuit.'

 

Actually, there was little choice in the matter. 'We had stock that we couldn't sell,' he notes. 'We had debtors from whom we could not collect and we had debts that we could not pay. The only thing we insisted on was that we had to pay the salaries of our staff. If everyone thought rationally, the storm would blow over and we would emerge stronger.'

 

Luckily for Mr Cheah, the group had some good assets. 'The GIC came in only in 2002,' he says. 'But we had been looking around long before that because we needed to restructure and the only way was to sell assets and bring in long-term investors. I went to everyone in town, the Employees Provident Fund, the Pilgrims' Fund Management Board, even Permodalan Nasional, but no one was interested.'

 

The businessman first sold one of his most cherished businesses - a profitable quarry operation - to Australian company Pioneer for close to RM800 million.

 

'Then through a third party I was introduced to GIC and they were interested,' Mr Cheah recalls. 'But you know you can't hurry them, they came and looked at everything and went through all the books. Finally, they bought 48 per cent of the hotel and the shopping mall, plus 20 per cent of the listed company. I needed cash and so I had to sell - for a couple of hundred million - but I made sure that I kept control. If not, there is no point.

 

'I think GIC is pretty happy with their investment,' reflects the businessman. 'It must have been good because Sunway was the only place that (Singapore's Minister Mentor) Lee Kuan Yew visited when he came here in 2002.'

 

What about the current crisis?

 

'What crisis?' Mr Cheah asks. 'Now there is opportunity and I want to gear up because my total debt is very manageable. I want to expand the universities, the nurses' hostel and the Pyramid shopping centre to two million sq ft.'

 

He seems absolutely convinced that it's time to step out. 'This is the time to do it because costs are dropping,' continues Mr Cheah. 'Everything is falling: materials, contracting costs, because the contractors have no work, and our skilled workers from overseas are coming back.

 

'Assets are getting cheap as well so there are buying opportunities out there,' he maintains. 'In two years there will be clear skies. Now our debt is comfortable and there is no banking crisis. Instead, they are looking for quality borrowers. From that perspective, we should be fine.'

 

Humble start

 

The businessman grew up in Pusing, Perak, the sixth child in a family of 10. His father was a lorry driver who went on to become a miner and did well enough to send the young Cheah to university in Melbourne, where he got a business degree.

 

Education has become a near-obsession. One of his two universities is 'twinned' to Monash University in Australia and is one of the very few in Malaysia to get the same status as its host: most of the degrees from 'twinned' universities in Malaysia are recognised locally but do not get the same recognition in the host country.

 

That leg-up has driven Mr Cheah to place both his universities under a foundation which he hopes will become a by-word long after he is gone. 'John Harvard (the founder of Harvard University) is my hero,' he says. 'It's over 300 years old and its reputation is unblemished and has gone from strength to strength. That's what I hope will happen here. Our education business is 23 years old and now, with this foundation, it cannot be sold.

 

'We have 14,000 students and 30 per cent are foreigners.' he continues animatedly. 'The degrees are recognised in Australia. Our first class of medicine will graduate this year - 50 of them and they are a microcosm of Malaysia with all the races represented.'

 

Now he wants to extend Monash University further. 'We don't have any Australian students here and they always say it's because they don't have any place to stay,' he muses. 'So we are building a 3,800-bed hostel so they will come maybe for one to two semesters. Then, there will be no reason for them not to come after the hostel is completed. Imagine a future Australian premier having studied in Monash here ... it will be great for us.'

 

He knows there is money in education. 'In 2006, merchant bankers urged me to list our group's education unit,' he says. 'They were valuing it at RM700-800 million. I could have done it, made myself richer but I want to leave something behind. So that's what the foundation is all about.'

 

In many ways, Sunway is unique by Malaysian standards. 'We are the only ones to build, develop and manage everything here,' Mr Cheah says with a touch of pride. 'The hotels aren't managed by some international group, we do it. We don't wait for the municipality to repair potholes or put in jogging tracks, we do it ourselves. We landscape everything. We even have our own auxiliary police. Now we have 83 but I want to push it up to 250. That's why there is very little crime in Sunway.'

 

He does not intend to stop any time soon. 'We are here to build a brand,' says Mr Cheah. 'It's a continuous process and you have to have a good name to carry it off. I am an entrepreneur. I can't stop myself building and developing things.'

 

JEFFREY CHEAH FOOK LING

Executive chairman, Sunway Group of Companies

Born in 1946 in Pusing, Perak

Education: Business degree from Victoria University

Businesses: Two listed companies - Sunway Holdings and Sunway City - involved in property development, construction, leisure and entertainment, civil engineering, building materials, quarrying, information technology, healthcare and education