Malaysian billionaires’ paving the way for sons
TAN Sri Quek Leng Chan's investment in TH Heavy Engineering Bhd (THHE) is the second recent example of a tycoon paving the way for his heir apparent to get a taste of the real business world.
Last week, Quek, via GuoLine Capital Ltd (GCL), bought 10% or 92.79 million shares in THHE via a private placement for RM41.8mil. Part of that was directly through his youngest son Quek Kon Sean, who will subscribe to 27.8 million shares. GCL is a unit of Quek's flagship Hong Leong Co (M) Bhd.
Clearly, the 33-year-old Quek junior is going to play a bigger role in THHE, going forward. Quek's move is similar to what another billionaire had done not too long ago.
In July 2011, Tan Sri AP Arumugam, a shrewd and savvy entrepreneur, emerged with a 6% stake in Hibiscus Petroleum Bhd, the first special purpose acquisition company (SPAC) to be listed on Bursa Malaysia. Arumugam, who is the founder and chairman of Sri Inderajaya Holdings Sdn Bhd that has significant investments in six major industries globally, subsequently raised his stake in the company to 8.8% a couple of months later.
Soon after, his son, Roushan Arumugam, then aged 39, was appointed as a director of Hibiscus.
For now, it remains to be seen whether Kon Sean would seek a board seat at THHE. Kon Sean had emerged as the heir apparent to the vast Hong Leong empire some six years ago and is the only one of Quek's three children to follow in his father's footsteps in the banking business.
It is likely that these tycoons are opting to place their sons in companies owned by others to give them the necessary exposure, something that may not necessarily happen when they emerge in positions in their fathers' companies.
The emergence of these tycoons in these comparatively small companies has the added attraction of bringing some pizzazz to these companies. Notably, Hibiscus and THHE are still in their growth phase, which means both Arumugam and Quek are taking on some risk by putting their money there.
However, the total amount invested in these companies is small compared to the coffers of these tycoons. The cigar-chomping Quek is the country's sixth-richest man with a fortune valued at US$4.2bil (RM14.25bil), according to Forbes' richest Malaysians list, while Arumugam is also said to be worth several billions.
So, some people have dubbed the situation as father's little “tuition fees” for junior to cut his teeth in the real business world, without the protection of dear old dad. This is a departure from the norm where tycoons are known to place their children in cushy positions within their own groups.
Bankers say Arumugam has created the necessary catalyst for other investors to put their money into Hibiscus. To be noted is that SPACs are mere shell companies, with no business to speak of other than a plan to buy corporations that would be folded into the entity after an initial public offering (IPO). Hibiscus is touted as a SPAC success story that other similar vehicles are hoping to emulate, by virtue of having raised a whopping RM235mil from its IPO back in 2011.
Hibiscus expects to drill the oil well in its Oman concession, which was bought as part of its acquisition of Lime Petroleum plc, some time soon, and this is poised to reverse its loss-making position in financial year 2014.
Similarly, in the case of THHE, since the announcement of Quek's entry, the mid-cap stock has shot up by some 22.5% to close at 57 sen on Friday. The Lembaga Tabung Haji-controlled company, which is involved in the fabrication of offshore steel structures for the oil and gas industry, is on the mend, having recently exited its PN17 status. It is clear that Quek sees upside, more so since the company turned around last year and is eyeing a risk service contract with Petroliam Nasional Bhd for marginal oil fields.
In about a month's time, THHE will seek shareholder approval for a 30% share-swap between Berlian McDermott Sdn Bhd, the local arm of McDermott International, and TH Fabricators Sdn Bhd, in a deal worth US$25.4mil. This signals a new direction for the company, and gives shareholders, including Kon Sean, the opportunity to ride the upside.