May 30, 2014 2:00 pm JST

Syed Mokhtar, the tycoon who might buy Malaysia Airlines

CK TAN, Nikkei staff writer

KUALA LUMPUR -- Ailing Malaysia Airlines may get bought out by one of Malaysia's most successful businessmen. According to a Malaysian financial daily last week, quoting sources, Syed Mokhtar Albukhary is one of the few parties to have approached the Transport Ministry and logged an interest in acquiring the national flag carrier, which has been in the red for the past three years.

     Government-linked companies, such as the Malaysia Airlines, make up more than a quarter of the 100 largest companies by market capitalization on the Kuala Lumpur stock exchange.

     Owned by state-run institutions, government-linked companies play an important role in socio-economic development. These companies occupy key industries such as transport, construction, energy, communications, agriculture, banking, oil and gas to ensure the country's key assets are secured under government control. They also employ a large number of ethnic Malays as a means to lift up their economic capabilities to that of the country's other ethnic groups under the longstanding Bumiputra policy of affirmative action favoring ethnic Malays. 

     But the 62-year-old Syed Mokhtar stands out from the rest of the Malaysian business community for the sheer size of the market he controls in strategic sectors. He is the man behind conglomerates such as DRB-Hicom, MMC Corporation and three other listed companies, which in total employ more than 110,000 people. Forbes magazine ranked him the seventh-richest Malaysian with a fortune worth $3.1 billion. 

     The reclusive tycoon does not sit on the board of these companies but holds them through his private companies. A request to his office for an interview was met with, "Tan Sri does not typically give media interviews," using his honorific title.

      Few in the corporate world seem to know Syed Mokhtar very well. When asked, Michael Yeoh, CEO of the think tank ASLI, only said, "He is an interesting and innovative person." He added that he went on a business trip to China in April with Syed Mokhtar.

     A descendent of migrants from Central Asia, Syed Mokhtar started humbly as a cattle trader in Kedah, a northern state famous for agriculture. He made his name as a rice trader and began to snap up initial public offering shares allocated specifically to Malays like him under the Bumiputra policy. He went on to acquire plantations and ports, according to his biography.

     His rise also coincided with the government's privatization drive in the 1980s through 1990s under then Prime Minister Mahathir Mohamed, where a number of state-owned companies became private -- but in the hands of ethnic Malay businessmen. One of them is DRB-Hicom, which was started in the early 1980s to spearhead Malaysia's industrialization ambitions. Out of this came Proton, the national carmaker.

Turning point

The turning point for Syed Mokhtar came after he approached Mahathir at the height of the prime minister's tenure, just before the Asian currency crisis of 1997-98. He was reportedly seeking "guidance" from Mahathir on several business projects that he had in mind. Mahathir was known to have a penchant for hardworking businessmen, especially if they are ethnic Malays.

     In 2000, Syed Mokhtar acquired MMC Corporation which was originally founded by the British as Malayan Tin Dredging. Today, MMC, which has a market capitalization of over 8 billion ringgit ($2.6 billion), is involved in construction, power generation, water treatment, ports 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. All airports in Malaysia come under state-owned Malaysia Airports, except for Senai.

     Another prized asset held by the tycoon is DRB-Hicom, a debt-ridden company he bought in 2005. DRB-Hicom is involved in three core business -- automotive, services and properties. Since its acquisition by Syed Mokhtar, the company has been making relatively healthy profits as it is involved in near-monopolistic businesses such as armed vehicle assembly, airport terminal services and post office management.

     DRB-Hicom slid again when it acquired the loss-making Proton in 2012. 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 in the form of higher tax rates imposed on non-national cars, Proton continues to see deteriorating sales and returns. This has dragged down DRB-Hicom's bottom line. DRB-Hicom is also burdened by the borrowing cost to acquire Proton. Analysts from local brokerages say that the only way out for Proton is to form a strategic partnership with a foreign carmaker to compete domestically and to break into the export market.

     Despite all this, Syed Mokhtar is still is on the lookout to snap up more strategic assets. Besides Malaysia Airlines, he is reportedly eyeing the national railway and sewage companies.