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East meets Wessex

   
Utility Week 20 June 2003 cover
Kuala Lumpur, 28 June 2003

YTL group managing director Tan Sri Francis Yeoh was recently featured on the cover of Utility Week magazine. The article by the utilities business weekly’s editor, Paul Garrett reveals ‘why Yeoh is a Wessex man’.

Utility Week, 20 June 2003

East meets Wessex
They were the mystery men from the East who pipped RBS for Wessex Water. Paul Garrett meets YTL’s Francis Yeoh

Imagine the scenario. It is 1989 and a group of government ministers, officials, financiers and water bosses are about to put the seal on the privatisation of the water industry in England and Wales. Suddenly a voice at the back pipes up. ‘In just over a decade from now these companies we are creating will be owned by the French.’ Some muttering. ‘And the Germans and Spanish.’ Some disquiet.

‘And a family-run Christian Malaysian construction, power and rail company.’ Cue delirious laughter.

Of course, privatisation was meant to create world-beating companies, British-owned and financed by equity. Instead, all of the above came true.

The arrival on the UK utility scene of Malaysian infrastructure corporation YTL is a surprise, even to seasoned observers of Britain’s utilities, where the motto seems to be ‘think of an ownership scenario and it’ll probably happen’.

When Wessex Water, mercifully ring-fenced from its bankrupt owner Enron, was put up for sale in 2001, few people in Britain had heard of YTL. It owned no water assets.

Everybody, including, famously, Wessex chairman and chief executive Colin Skellett, thought that the Royal Bank of Scotland would buy Wessex.

At the last gasp YTL pipped the Scottish bank at the post. But, to use YTL managing director Francis Yeoh’s own words, who the hell are YTL?

‘Yes,’ says Yeoh, ‘at the time we secured Wessex, one of your newspaper headlines asked “Who the hell is YTL ?” Well, we are an archetypal Malaysian family business that, in the span of 50 years, has turned a modest construction company into five listed companies in the fields of utilities, power generation and transmission, transport services and property development.

‘YTL was a pioneer in the field of regulated utilities in Malaysia and we now have a list of regulated utilities across three continents,’ he says.

Those three continents are Asia, Australia and now, thanks to Wessex, Europe. And YTL’s plans go further still.

The YTL story began when Francis’s grandfather left Fujian Province in China in 1920 to seek his fortune in what the Chinese call Nanyang – the South Seas. He started a small timber company which expanded into construction.

In 1955 YTL was formed as a construction business in the then colony of Malaya, building barracks and ammunition buildings for the British colonial forces. After independence in 1960, YTL built defence installations for what was now the Malaysian government, moving then into schools and agricultural installations.

The young Francis was immersed in the family business at an early age. ‘My only idea of sightseeing was touring construction sites, not Disneyland,’ smiles the energetic and enthusiastic 49 year old.

As a teenager he sat in on board meetings before being sent to England to university, where he graduated with a degree in civil engineering at Kingston University. By 1984 he was a director of YTL Corporation.

In the 1980s YTL pioneered the privatisation of Malaysia’s regulated housing sector, a development that Yeoh is immensely proud of. ‘Our housing programme was used to jumpstart the economy out of the recession in Malaysia,’ he says.

‘The aim was to provide homes for the poor. People had to be able to buy a home for no more than US$6,500. To do this so cheaply the land had to be free. So we were given the land on which to build by the Malaysian government.’

The programme was a huge success. A second generation of homes was built, this time with more rooms for larger families, and then YTL moved into high-rise developments. The new developments needed power, so YTL duly expanded into the power sector.

Yeoh became managing director of YTL Power International in 1996, by which time the corporation was building power stations with partners such as Schroders and Siemens.

From there, the corporation expanded into the ElectraNet electricity transmission network in South Australia and the ERL high-speed rail link from the centre of the Malaysian capital Kuala Lumpur to the international airport.

   
FAMILY AFFAIR: Although YTL is a listed company, it is still run by the Yeoh brothers. Francis, left, is a long-time admirer of Wessex chief executive Colin Skellett, right
Water was the logical next step. But why the UK and why Wessex, when many, notably the Americans, have struggled with Britain’s regulatory system?

Yeoh and YTL like regulated industries. ‘Water, power, key transportation, they all need regulation like cities need police,’ says Yeoh. ‘You cannot leave utilities entirely to the free market.

‘For YTL our key markets are where the regulatory environment is right. Britain is the apogee of this.’ Yeoh likes the stability of regulated business, the protection that regulation gives against economic downturn, and the fact that it is relatively easy to raise finance on regulated operations.

After Britain, regulatory regimes in Victoria, Australia, and potentially the United States and Canada appeal to YTL. And the corporation sees great potential in what Yeoh calls the ‘new Europe’ – the accession countries that will soon swell the European Union to 25 member states.

Water has a particular appeal. ‘Water, particularly in Britain, has a huge capex,’ says Yeoh. ‘We are in construction, we are in civil engineering, so we understand this.’

But the opportunities in water in Malaysia are limited as the industry there is still run by central government.

‘We liked the regulatory regime in Britain, and we liked the fact that Wessex scored highly in the Ofwat rankings and had such high profitability per employee.’

He was also impressed with Colin Skellett and of course stuck by him when the infamous ‘million pounds payment’ saga unfolded.

Yeoh follows utility policy issues here closely, and while professing to admire the regulatory system, sides with water minister Elliot Morley on mergers policy. ‘Colin and his team are running an excellent water company, so why not be able to expand their expertise further?’ asks Yeoh.

‘Everyone says they like the equity-financed model, and mergers bring efficiencies and so encourage equity investors.

‘But the regulator is not wrong – look at the success of the ring-fencing of Wessex, all thanks to the regulator.’

So YTL would like to expand its water interests in Britain, and maybe into power too, when the regulatory moment and the price is right – which probably isn’t now. Europe also attracts.

YTL brings to the utility party speed, verve, plenty of cash – and a cultural way of doing things that is different.

‘Europeans tend to do business using logic first, the law second and friendship third. In America, it’s the law one, two and three. For us in Asia it’s friendship first, then logic, then tie it up with the law.

‘Honesty in Chinese business is a strict code of behaviour within a moral and philosophical framework at the centre of which is the overarching virtue of trust.

‘Trust in business dealings is more potent than the black letter law of the contract – not that we don’t honour our contracts. But in the East relationships are of prime importance. Logic and law, in that order, come after relationships in the scale of things. You have to be something else also – an enthusiast, to have passion.’

Yeoh certainly has both in spades. ‘People tend to see utilities – as the name implies – as boring. They are not – they are exciting. There must be an element of passion in enterprise as well as in, say, politics.’

Passionate about utilities, indeed.

   
Tan Sri Francis Yeoh and YTL
Francis Yeoh was born in Kuala Selangor, Malaysia, in 1954. After graduating from Kingston University, England, he became a director of YTL in 1984. He took the business public two years later as YTL Corporation and grew it from construction to cement, then into hotels and power generation. He rose to become managing director of YTL Corporation in 1998, having weathered a recession thanks to having little US dollar-debt and so being able to acquire assets from other troubled businesses at bargain prices.

Today YTL is still a family business, run by the Yeoh brothers, and is now one of the largest companies listed on the Kuala Lumpur Stock Exchange. Together with its three listed subsidiaries it has a combined market capitalisation of £3.3 billion. The company was listed in 1985 and has had a secondary listing on the Tokyo Stock Exchange since 1996. Last year it had revenues of £517 million and made a pre-tax profit of £126.6 million. According to Business Week magazine, the company is sitting on £1 billion in cash and has only £561 million in debt.


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