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Saturday, June 14, 2014

Syed Mokhtar, the tycoon with his eye on the sky

Syed Mokhtar Albukhary in 2002 © Reuters
KUALA LUMPUR -- Malaysia's ailing flag carrier may find itself in the hands of one of the country's most successful businessmen.
     A Malaysian financial newspaper reported late last month that Syed Mokhtar Albukhary is one of a few parties to have approached the Transport Ministry and expressed interest in acquiring Malaysia Airlines. The company has been in the red for the past three years.

    The 62-year-old Syed Mokhtar is the man behind auto conglomerate DRB-Hicom, energy and construction group MMC and three other listed companies. These businesses employ a total of more than 110,000 people. Forbes magazine ranked Syed Mokhtar the seventh-richest Malaysian, with a fortune worth $3.1 billion.
     A descendant of migrants from the region on Pakistan's border with Afghanistan, Syed Mokhtar started out as a cattle trader in the northern state of Kedah. He made his name as a rice trader and began to snap up initial public offering shares reserved for Malays like himself under the Bumiputra affirmative action policy. He went on to acquire plantations and ports.
     He was also able to capitalize on a government privatization drive in the 1980s and throughout the 1990s, under then Prime Minister Mahathir bin Mohamad. A number of state-owned companies were subject to the reform -- with ethnic Malay businessmen taking control.
Turning point
At the height of Mahathir's tenure, just before the Asian currency crisis of 1997-1998, Syed Mokhtar approached the prime minister. He was reportedly seeking "guidance" from Mahathir on several business projects. Mahathir was known to have an affinity for hardworking businessmen, especially ethnic Malay ones.
     In 2000, Syed Mokhtar acquired MMC, which was originally founded by the British as Malayan Tin Dredging. Today, MMC has a market capitalization of over 8 billion ringgit ($2.48 billion) and is involved in construction, power generation, water treatment, port management and gas distribution.
     The company is one of the main contractors currently building the country's 23-billion-ringgit urban railway project. Its energy subsidiary, Malakoff, is the largest independent power producer in Malaysia. MMC's two shipping ports in the south handle 40% of the country's total container traffic. Another subsidiary, Senai Airport Terminal Services, manages a fast-growing regional airport in the southern state of Johor. Save for Senai, all airports in Malaysia operate under state-owned Malaysia Airports.
     Another prized asset held by the tycoon is DRB-Hicom. Syed Mokhtar took control of the government-linked, debt-ridden business in 2005.
     DRB-Hicom has three core segments -- automotive, services and properties. Since its acquisition by Syed Mokhtar, the company has been racking up relatively healthy profits, aided by its near-monopolies in armed vehicle assembly, post office management and airport terminal services provided under contract with Malaysia Airports.
     In 2012, DRB-Hicom took over Proton, Malaysia's loss-making national car manufacturer. Proton, which recently appointed Mahathir as its chairman, has seen its market share drop to about 20% from its peak of 52% in 2001. Despite being protected by the government -- with higher tax rates imposed on imported cars -- Proton continues to see deteriorating sales and returns.
     This has dragged down DRB-Hicom's bottom line. The group is also burdened by the cost of borrowing to acquire Proton. Analysts from local brokerages say the only solution is for Proton to form a strategic partnership with a foreign carmaker, which could make the company more competitive at home and help it break into the global market.
     Despite these struggles, Syed Mokhtar is on the lookout for more strategic assets. Besides Malaysia Airlines, he is reportedly eyeing the national railway and sewage companies.

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