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Banyan Tree's accidental hotelier

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Ho Kwon Ping, who describes himself an “accidental hotelier,” is opening five to six hotels every year. With a personal fortune that he admits exceeds Forbes’ latest estimate of $280m, his global empire of hotels, holiday resorts, spas and luxury residences under the brand of “Banyan Tree” is more than a chance business. Besides diligence, business acumen and the occasional “gut” feel, Ho expanded the family business and built his fortune based on his love for travel, a strong awareness of brand power and a dedication to sustainable development.

 Besides being the Founder and Executive Chairman of Singapore-listed Banyan Tree, Ho is Chairman and CEO of Thai Wah Food Products Company and Laguna Resorts and Hotels, formerly known as Thai Wah Resorts Development Company. Both trade on the Stock Exchange of Thailand.

Wealth management

Ho, 61, says his wealth is managed by a “modest” four-people team and none of them an ex-Goldman Sachs partner. “It doesn’t take very much wealth for you to need to have a so-called family office.

“You need to keep separate accounts; you need to manage your cash, manage your investments and we have quite a lot of property investments all over the world, which aren’t captured by Forbes.”

As the US stock markets reached record highs, Ho cut his holdings in global equities and increased his investments in real estate. “Everyone knows that there are a lot of private investors now wondering about the global equity market,” says Ho. “I am reducing my exposure to equities on the grounds that I am exposed to equity with Banyan Tree as a proxy already.”

Ho’s family office is in the process of considering a more “structured and institutionalised way” of investing in real estate. “I am not necessarily more positive real estate based on any professional analysis.”

“I am doing this from a gut feeling that essentially I haven’t done as well in equities as I would have liked to.” Ho adds that his own portfolio of real estate investments has outperformed returns from equities by multiple times. “The equity market is moving in a way that is less predictable than it used to be.”

“Right now, whatever that is happening in Euroland and all the austerity measures; the whole crisis that is still continuing is going to affect the equity markets and it will be highly volatile.”

“The real estate market is going to be a lot less so, especially if it is commercial real estate,” says Ho. “In volatile periods, proprietary traders make the most money and poor fellows like us, we are the last to know what is going on.”

Ho isn’t invested in commodities. “I would not take any positions on gold or commodities simply because I don’t have enough knowledge about the sector and to me that would be gambling,” says Ho. “The way I look at it is similar to running a business. You either trust other people with it or you don’t and you shouldn’t do it yourself unless, say conservatively, you have a 70% likelihood that you would make money on it.”

Asset rebalancing

Banyan Tree was established in 1994 and publicly listed in 2006. With hotels, resorts and spas spread over 27 countries, the company’s fortunes are tied closely to the tourism industry. In 2004, profit was badly hit by the South Asian Tsunami. Profit after taxation and minority interests (PATMI) recovered in 2006 to S$33.5m ($27m). In 2008, the tourism industry suffered because of the global financial crisis and political unrest in Thailand and profits fell again. In 2010, the company started an asset rebalancing strategy, which is starting to bear fruits.

“When we say asset rebalancing, there were two issues - one was we were too asset heavy and our balance sheet of about S$700m or so was largely invested in hotels with some good performers and some not so good performers and also a lot of weighting to Thailand,” explains Ho. An aspect of rebalancing is to “have less dependence on Thailand” and the other “would be to sell non-core assets in order to get the cash to invest in faster-return projects.”

Banyan Tree has sold its maiden properties – the Laguna Resort Hotel and the Laguna Beach Resort in Thailand’s Phuket. In January, it sold Angsana Velavaru in the Maldives to a hospitality trust run by Singapore-listed City Development Ltd. for $71m. Under the deal, CDLT will lease the resort back to Banyan Tree on a 10-year management contract. The trust will be paid rent equivalent to the resort’s gross operating profit after deducting management fees. The deal allows CDL to diversify its earnings into luxury resorts, tapping into rising Asian affluence and outbound Chinese travellers. For Banyan Tree, it enables the company to free up capital as it gets ready to launch a new brand.  “We have four hotels in the Maldives. I don’t need four hotels in the Maldives.”

The new brand will be “property-based” and will include the management and sale of “secondary homes that are targeted towards a more affordable market, such as the younger Asian middle class.” Banyan Tree recently launched such a project in Phuket, which comprises largely small apartments each measuring 40-55 square meters and costing $100,000-$150,000. The company has already sold 150 units out of 250 and planned to launch similar projects in Indonesia’s Bintan, China’s Lijiang and Sri Lanka. “We are looking at other places in China and Indonesia” and “we will put in the capital that was released from the asset disposals and that capital will come back fairly quickly because we are selling off these units.”

Banyan Tree has set up two funds to help finance projects in Vietnam and China. In 2008, despite a difficult year, Banyan Tree set up its $300m IndoChina Hospitality Fund. In 2011, the Banyan Tree China Fund was established, raising RMB1bn ($163m). They are “structured like a normal private equity funds,” says Ho. “The difference being that they are used to invest in only Banyan Tree’s projects, which we design and manage afterwards; so it is clearly very highly structured for Banyan Tree.” The company is exploring the possibility of extending the successful fund model into other areas of its business.

Another area of Banyan Tree’s business that is gaining impetus is the company’s fee-based sector, which includes earnings from hotel management and services for architectural and interior design. “We are doing that very rapidly now for both the funds as well as the management contracts we have in China.

“In the space of seven years we have rolled out nine hotels; we are rolling five to six hotels every year. I just came back from China and we just opened two hotels – Chongqing and Tianjin.”

Banyan Tree is expected to open at least 10 hotels in China in the next five years. “We are gaining momentum now for the direction that we have set ourselves, which is a change from the past.”

Despite the company’s strategic turn, Ho says the company’s PATMI remains “way down” compared with numbers achieved during its initial public offering in 2006. PATMI last year was S$14.9m. “We were really selling like hot cakes because the Chinese and the Russians were coming with suitcases of cash to buy properties costing several million U.S. dollars and margins were over 50% for us.

“Now, margins are down to about 30%. We have smaller projects but at least sales are gaining traction.” Ho expects profit attributable to shareholders to return to IPO levels in at least two years as property sales increase.

Succession planning

Ho says he isn’t looking at retirement but recognises the need to plan for his gradual phasing out. He has already started to reduce his involvement at Banyan Tree following the appointment of a CEO. “In the past, though I did not hold the title, I was effectively the CEO and the final go-to guy.”

With a reduced role at Banyan Tree, Ho turned his attention to Wah Chang Group and Thai Wah, businesses that were founded by his parents and his grandfather. “I am now looking at the group as a whole and planning for the next 10 years,” says Ho. “I am looking at how I have to structure the rest of the business bearing in mind that one day I will have to leave the scene.”

Ho joined the family business, Wah Chang, in 1981. Wah Chang was founded by Li Kuo Ching, Ho’s maternal grandfather, in 1916. Li, an engineer who was reportedly the first to discover tungsten deposits in China, established Wah Chang in the US to trade in tungsten and other commodities. The company was then a leader in mining and smelting, research, commodities trading and engineering services.

Li established Thai Wah to expand the tungsten trade to Asia. Ho’s parents joined Thai Wah and the company’s business later evolved to include construction, engineering, manufacturing and agribusinesses in Burma, Taiwan, Thailand, Singapore, Malaysia and China. His father, Ho Rih Hwa, was not only a businessman and entrepreneur, he was also Singapore’s ambassador to Thailand, Belgium, Germany and the European Economic Community, and was Singapore’s Permanent Representative in Switzerland. He was also a director of the Monetary Authority of Singapore and a representative of the Economic Development Board. Ho’s mother, Li Lien Fung, was a famous writer with numerous award-winning plays and books to her name.

When he took over the family businesses of Wah Chang and Thai Wah, Ho sold off “quite a number of business that were not viable in Singapore, Malaysia and Indonesia.” While his privileged background has helped propel his wealth, Ho built Banyan Tree from scratch and the global company is now worth nearly $400m.

He calls his hotel empire “a coincidental business.” “It is not something that I had particularly wanted to do. When I first joined the family business, I was a journalist. I was trained in developmental economics and that was my interest and still is.”

Banyan Tree serves as a vehicle to pursue his interest. “It is not so much the bling bling of the chandeliers and all that kind of stuff. I see it as a mechanism for economic improvement in the places that we invest.”

While working as a journalist for the Far Eastern Economic Review, Ho was famously detained under Singapore’s Internal Security Act and put into solitary confinement for two months for writing incendiary pro-Communist articles.

As a young entrepreneur, Ho too made mistakes and his early blunders weren’t cheap. He purchased his first resort site without thorough due diligence, realising later that it was an abandoned tin mine. The site, where the Laguna hotel and beach resort complex now sits, had to be cleaned before development could start, adding to construction costs.

In an earlier venture as a “young and brash person keen to set his mark on the company,” Ho had built a jack up rig to take advantage of China’s potential oil reserves in the South China Sea. With virtually no engineering background, he completed what was then regarded as the “largest jack-up rig that China had ever built (in the 80s).”

Unfortunately the timing was “horrendous,” says Ho. “We had a handshake deal to sell the rig to the Ministry of Drilling but when we finished the global market for offshore rigs collapsed and China found that they didn’t have much oil in the South China Sea after all. They had gas.” Ho says the venture “didn’t bankrupt the company but quite a lot of money was lost.”

Ho quit following the failed venture but his father refused to accept his resignation, urging him to stay on and make back the money he had lost. “I started Banyan Tree and I have made back the money and I think I can quit now.”

 

 

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