Saturday, December 02, 2006

The Genting Story

Raffles Conversation in The Business Times, Singapore, today:

New Genting chief Lim Kok Thay tells EDDIE TOH why it is necessary for him to raise the ante since he took over control of the group from his father

LIM Kok Thay has clearly emerged from the shadow of his famous father, Lim Goh Tong, who founded the sole casino group in predominantly Muslim Malaysia four decades ago.

The younger Lim has shed his shy persona and is firmly in charge of the sprawling Genting group, which will make its biggest investment ever in Singapore should it clinch the licence to develop the second integrated resort with casino on Sentosa at a cost of more than $5 billion.

His new-found confidence is reflected in his markedly different management style from his 89-year-old father, who passed the baton to his second son four years ago. The younger Mr Lim is also ready to talk more about his family - one of the richest in Malaysia - whose wealth tops US$2 billion.

For a start, Mr Lim, 54, is less averse to resorting to borrowing to help the Genting group expand in the global arena, quite the opposite of his father, whose distaste for bank loans is well-known.

'He started from scratch and built a local business and gave us a good platform to springboard from,' the younger Mr Lim tells BT during a three-hour conversation in his Singapore office at Park Mall last week.

'Going global needs a different set of skills and mindset - one of which is more risk.'

'You need to gear up more. My father would be dead against not just over-gearing, even gearing,' he explains.

He quips: 'He's losing more sleep than I, worrying about my gearing!'

But Mr. Lim's company is nowhere near over-geared. Although borrowings of once debt-free KL-listed Genting Bhd have more than doubled to RM2.5 billion (S$1.1 billion) since he took over full control from his father, its gearing ratio is low at less than one-third of its shareholders' equity. The only exception is capital-intensive Star Cruises, which is still going through a rapid expansion phase.

Such is the confidence of the new casino kingpin, who learnt the ropes in the casino business quite early on. He was about 17 when his father clinched the casino licence against all odds in the mid-1960s.

Being closely involved with his father's business for the last three decades, he has naturally honed his business acumen. Like his father, Mr Lim is a visionary businessman with big business ideas and the same never-say-die trait.

He wants Genting to be one of the three gaming giants in terms of revenue with a global, rather than regional, footprint. 'We can achieve our vision even without Singapore. Of course, with Singapore, it becomes an even stronger network,' he declares.

A strong foundation in the family business has helped Mr Lim oversee Malaysia's most popular tourist destination ever since he graduated with a Bachelor of Science (Civil Engineering) from University of London in 1975. He obtained a management degree from Harvard Graduate Business School in 1979.

One of his early tasks was the migration of the casino from the basement of a small hotel to a bigger hotel at the Genting Highlands resort, which is located 58 km from the Malaysian capital.

The father of three doesn't hold back when discussing the fortunes of the group, which has a total market capitalisation exceeding RM50 billion, with assets in Malaysia, Singapore, Hong Kong and the United Kingdom.

They include the Malaysian casino and resort business under Resorts World; regional cruise business under Star Cruises; newly acquired UK gaming and casino business under Stanley Leisure and Maxims; Malaysian plantation under Asiatic Development; power generators in Malaysia, India and China; and oil and gas exploration ventures.

Two common themes are still present in all the group's new business considerations - high capital expenditure to ensure high barriers to entry, and an expected internal rate of return of at least 15 per cent for each business segment. Mr Lim says he won't look at projects that generate returns of less than 15 per cent.

One of his biggest bets was Star Cruises. He convinced his father to take the plunge into the cruise business in the early 1990s, instead of ploughing the group's earnings into their hotel business. The senior Lim agreed after they witnessed the tourism appeal of cruise liners in the Bahamas and Miami. The Lims felt more Asians would turn to cruises as a form of recreation as their income rose.

Their bet turned out to be correct. From an initial pair of small ships acquired from a troubled Swedish ferry operator, Star Cruises has emerged as the third largest cruise operator in the world with a combined fleet of 20 ships.

But the rapid expansion has come at a hefty cost. Star Cruises, which is listed in Hong Kong and quoted on Singapore's Clob International, has seen its borrowings balloon to nine times its Ebitda (earnings before interest, taxes, depreciation and amortization), according to rating agency Standard & Poor's.

S&P has given Star Cruises a BB- rating, which is considered junk status due to its risky credit profile. Ratings of BB and below are considered junk or risky to credit rating companies, which assign ratings of BBB and above to healthier borrowers.

Star Cruises' highly leveraged position has naturally raised questions about its ability to partner sister company Genting International for the Sentosa project, which will require fresh borrowings of at least $3 billion.

But Mr Lim is unperturbed, citing Star Cruises' continued ability to service its debts. High gearing is necessary to help the young company keep up with more established rivals such as Royal Caribbean and Carnival, he argues. 'I don't set the pace in the cruise business. If I don't follow I will be left far behind,' he says.

He is proud of the group's overall financial strength despite the borrowing weight on Star Cruises, saying that bankers are quite happy with the core business of the group.

For instance, Genting Bhd - the ultimate holding company of the conglomerate - is accorded a strong rating of BBB+ by S&P. 'All gaming companies are junk except Genting,' Mr Lim declares.

And Mr Lim pooh-poohs nagging perception that Genting is a third-rate resort owner in Malaysia. 'People say we are a Third World gaming facility but how come we have first-class rating?' he argues.

He is also banking on the group's impeccable track record to help clinch the Sentosa IR project. 'We believe we have presented an iconic bid,' he says, heaping praises on its world-class partners and renowned American architect Michael Graves.

Mr Lim believes he has two trump cards - the partnership with movie and theme park icon Universal Studios and DreamWorks, a movie animation company co-founded by legendary Hollywood director Steven Spielberg.

He says Genting would not have been able to team up with such big names if it had remained a domestic business. 'If you had not gone global, people like Universal and Spielberg will say: 'Who are you?'' he says.

Mr Lim says DreamWorks - responsible for blockbusters such as Madagascar, Shark Tale and Shrek 2 - will be a 'catalyst' in the Genting-Universal blueprint for the 49-ha Sentosa IR project.

In a statement to BT, DreamWorks disclosed that its digital animation studios - with a floor area of 1,400 square metres - will 'give visitors a peek 'behind the scenes' to learn how film animators are using state-of-the-art computer technology to create some of today's most popular films.'

More importantly, the new Genting chief feels that it will be a breeze for his consortium to make good the promise to deliver up to 10 million people to Sentosa to help Singapore exceed its tourism target of 17 million visitors by 2015. Under 10 million tourists visit Singapore currently.

'I don't think anyone else can boast about such actual numbers,' he says, adding, as an example, that Singapore will almost achieve its tourism target overnight should Genting and partners shift a mere 10 per cent of their current customer base to Singapore.

Genting, Stanley Leisure and Star Cruises catered to nearly 25 million local and foreign visitors last year - more than the 17 million tourists to Malaysia last year. Universal's theme parks in Orlando, Los Angeles, Japan and Spain collectively attracted more than 46 million visitors last year.

But Mr Lim is not interested in simply shifting the cards around. He says he wants to create a brand new world-class destination that will compete with the best resorts in the world for new visitors.

The odds are in his favour. Analysts have touted Genting as the front-runner for the Sentosa project despite stiff competition from CapitaLand-Kerzner and Eighth Wonder. Genting and CapitaLand both failed to clinch the Marina Bay IR project earlier this year.

Clinching Sentosa will definitely be a boost to Genting although it may affect its own highlands casino on the border of the Malaysian states of Selangor and Pahang, analysts say.

But it may be no bad thing if its highlands casino is affected. Perhaps mindful of the perennial call by some Muslim politicians to shut down the sole legal casino in the country, Mr Lim says the group plans to reduce its dependence on its Malaysian gaming business over time by constantly diversifying into other businesses.

Although he has played a key role in turning Genting into a global player, he still sticks to his father's simple philosophy in life. 'Reputation and trust are more important than money,' he says.

The new casino tycoon adds: 'We cannot create the wrong impression. Once we create the wrong impression, it will continue to haunt us.'

The savvy gambler

THE second son of Malaysian casino tycoon Lim Goh Tong readily admits that he is a gambler.

'Life is full of gambles but I'm not a hard-core gambler,' quipped Lim Kok Thay (right in the pix), who took over the helm of the Genting group following his father's retirement four years ago. Instead, the social gambler has turned the Malaysian gaming business into a fine art due to his passion for the business.

Kok Thay, 54, is the only child of the patriarch who has remained in the huge group. A relative in the group is Justin Leong, who is the son of Kok Thay's sister Siew Lian. Mr Leong is head of the group's strategic investments and corporate affairs.

Younger brother Chee Wah, who was once the joint managing director of Genting with their father in the early 1990s, is now running Hong Kong-listed property investment and financial services company VXL Capital.

Chee Wah apparently quit Genting due to differences with their father but Kok Thay dismisses the rumour, saying his brother preferred to dabble in other businesses.

Eldest brother Tee Keong quit as Genting director in the late 1990s. He was subsequently embroiled in a messy suit with two partners over personal stock market losses of over RM38 million (S$16.3 million).

There are also three girls in the family. One of them, Siew Kim, controls listed property company Metroplex, which has been mired in debt since the late 1990s. Genting did not bail out Metroplex despite the family ties.

Genting's success story must be partly attributed to Kok Thay although the empire was founded by his father four decades ago when he clinched a casino licence unexpectedly.

Analysts like the well-run and professionally managed company. The stock has breached RM30 from a low of RM6.40 during the stock market meltdown in 1998.

While Genting has taken correct bets under Kok Thay, his personal bets have been riskier. For example, Kok Thay gave out US$80 million in personal loans at a high interest rate to the Seneca Indian tribe to build a casino in Niagara Falls and acquired a substantial stake in troubled Malaysian lottery operator Mycom.

But Kok Thay is not taking any unnecessary risk with his listed group or its prized Malaysian casino licence, which has to be renewed quarterly by the Finance Ministry. He refuses to disclose the actual fee for each quarterly renewal of the licence but admits that it is now a 'substantial' amount.

But he does not see it as a hindrance, saying that it helps the group's cashflow to pay the government every three months instead of paying one big lump sum at the end of each year.

Nevertheless, he is constantly scouting for fresh businesses to help cut the group's over-dependence on the Malaysian gaming business, which generates two-thirds of its revenue.

'I gamble socially. But I only take calculated risks in business,' Kok Thay adds.


Cool Insider said...

Certainly, having world class big names and superlative draws make a lot of difference in the tourism attraction business. However, Genting also needs to work with the ground and forge the right partnerships for long-term success. It should not neglect understanding the local context, relationships and peculiarities of the Singapore leisure market while courting the Asian high rollers.

Have a look at my post on this.

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