Concerns over Growing Debt Load of the Al-Bukhary Group

December 30, 2010

Concerns are rising over the growing debt load in Tan Sri Syed Mokhtar Al-Bukhary’s companies now that the tycoon is expected to snap up the multi-billion ringgit tunnelling contract for the city’s RM36 billion train service and the Penang Port.

Former rice trader gets bulk of fortune from Malaysia Mining Corp. (MMC), through which he holds concessions to operate a port and an airport in Johor; owns stake in power producer Malakoff. Through listed Tradewinds, recently took over national rice supplier Padiberas Nasional. Owns Harrods in Malaysia.

Singapore’s Straits Times reported today that the Kedah-born businessman’s debts could be as high as RM25 billion, with RM21 billion itself incurred by his flagship MMC Corp although his officials claimed most of it is due to project financing.

“There are a host of corporate governance issues that plague his group and the chief among them is the rising debt load,” said one chief executive of a boutique financial consultancy.

“The fear is that his group could be the Renong of this decade,” said a senior politician from UMNO, referring to the politically well-connected conglomerate headed by businessman Tan Sri Halim Saad.

Renong feasted on infrastructure projects dished out by former premier Tun Dr Mahathir Mohamad’s government. But when the regional crisis hit in mid-1997, it was crippled by huge debts and was eventually bailed out with public funds.

The Singapore daily reported that in the past year Syed Mokhtar had emerged as “the single biggest beneficiary of state contracts and concessions worth billions of ringgit, making him Malaysia’s most favoured corporate son and the government’s partner of choice.”

But close associates of the lanky and reserved tycoon insist the debt concerns are misplaced and he is not biting off more than he can chew. The newspaper said they acknowledged that the debt load of Syed Mokhtar’s corporate flagship, publicly-listed MMC Corp, which stands at just over RM21 billion, may appear high. But the lion’s share of the debt is project finance, a complex form of financing reserved for large-scale infrastructure projects where the debt is typically repaid from funds generated from the businesses.

“The debt load is manageable and is high because of the nature of the businesses the group is involved in,” said a senior corporate lieutenant of Syed Mokhtar, who insisted it can easily raise funds to finance future projects.

But some Kuala Lumpur-based bankers are not so sanguine, noting that the financial returns from many of the group’s assets — such as its power plants — are poor yielding, and that its ports, which are not performing well, could suffer should the global economy enter a slump.

The newspaper also said the shares of the listed companies in Syed Mokhtar’s corporate empire “do not seem to appeal to conservative foreign and domestic fund managers”.

Born to a family of traders with roots in Bokhara, in present-day Uzbekistan, Syed Mokhtar began his business career peddling Thai rice to the state governments in northern Malaysia before riding the boom on the stock market in the 1990s.

The capital from trading in stocks provided him with financial heft for his first major venture: the purchase of a port in Johor which today is the Port of Tanjung Pelepas.

The Straits Times said by leveraging on his strong ties with politicians such as Dr Mahathir and current Deputy Prime Minister Tan Sri Muhyiddin Yassin, who at the time was the mentri besar of Johor, Syed Mokhtar moved into other areas.

Admirers and close associates told Straits Times that Syed Mokhtar is often favoured because of his lavish donations to Islamic causes and political contributions. His companies contributed around RM350 million last year to his own foundation, which focuses on education and religious causes, the newspaper reported.

However, it said critics argue that the businessman’s clout illustrates how the old patronage system where business and politics intertwine in Malaysia remains in force. “He is a master at the political game first and only then a businessman,” said a financial consultant who has done work for Syed Mokhtar’s group.

–www.themalaysianinsider.com

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