This article first appeared in Forum, The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024

IOI Group rarely hogs the limelight for the wrong reasons. Last week however, when a major shareholder of the group proposed the participation of its listed property arm in the redevelopment of a property in Singapore, the announcement attracted a lot of scrutiny.

Group chief executive Datuk Lee Yeow Seng, who is a major shareholder of IOI Group, which controls IOI Property Group Bhd (KL:IOIPG), had purchased a piece of property called Shenton House in Singapore for S$538 million in November 2023 through his private company.

Yeow Seng’s proposal to IOIPG is for a transaction that values Shenton House at the same price at which he had purchased it plus any upfront cost incurred, including expenses for consultants and the tender.

This proposal will be going to the shareholders for approval. While they will need to deliberate on the merits, the deal, among others, highlights the challenges that successors of family-managed companies face when they take over the helm.

The pressure point for the next generation is not only keeping the family business intact but also growing it bigger than what they had inherited. This is tough because most of those appointed to lead the companies would not have traversed the piranha-infested corporate world that their predecessors would have in the course of building up their business empire.

And in sync with Asian culture, the expectation is for family members with the same surname and family lineage to take over the business. Outsiders are rarely allowed to sit on the big chair, presiding over a family business.

The hallmark of the heirs of family businesses that are managed by the second and third generations is their deep pockets. They are not under pressure to deliver immediate returns.

Hence, the second and third generations tend to take pride in having a long-term view of investments, which may not correspond with the interests of minority shareholders, especially if listed companies are involved.

This is why some family-owned companies tend to separate the private businesses from the listed company because of their long-term view of investments.

Yeow Seng and his brother, Datuk Lee Yeow Chor, became major shareholders of IOI Group following the death of their father Tan Sri Lee Shin Cheng in 2019. The elder Lee had built the group into one of the largest integrated plantation companies in the world.

Taking over from Lee Sr was already a difficult task, what more growing the business beyond the plantation sector.

In the case of IOI, the expansion is into the Singapore property market, an area that the group is familiar with. IOI Property Group already has at least three major developments in Singapore. Moreover, in land-scarce Singapore, nobody can get it wrong with property.

The venture into Shenton House is Yeow Seng’s private initiative and comes when there is a slide in the Singapore property market following the local government’s implementation of the Additional Buyer Stamp Duty in April 2023, coupled with a higher interest rate regime.

Generally, most of those who take over family-managed companies get a knock or two as they enlarge the business they inherited. They go through setbacks and recover and then grow stronger.

For instance, Tan Sri Lim Kok Thay of Genting Group had his fair share of tumbles as he took charge of the group in its global expansion. The group’s founder and Kok Thay’s father — Tan Sri Lim Goh Tong — did not expand beyond Genting Highlands.

For the longest time, Genting Group was known as a one-hill wonder. Its game changer was winning the bid for one of the two casinos in Singapore in December 2006 at a cost of S$5.2 billion. Today, the Singapore operation accounts for a major portion of Genting Group’s bottom line.

But Kok Thay had struggled as he sought to expand Genting Bhd (KL:Genting) beyond the casino and family entertainment theme park at Genting Highlands. His first major venture was into the luxury cruise business in 2000 via the takeover of Norwegian Cruise Liner (NCL).

The group learnt the hard lessons of the luxury cruise business when it operated NCL and eventually exited the Norwegian company in 2013. By then, the family’s cruise business interest was held by Genting Hong Kong Ltd (Genting HK), which fell under the weight of debts amounting to US$3.9 billion in February 2022 due to the pandemic.

Fortunately, Genting HK was majority-owned by the Lim family directly and so its collapse did not impact Genting Group, which went on to open a casino in Las Vegas.

Stripping out the government-linked companies (GLCs) and a handful of multinational companies, the majority of the large listed entities on Bursa Malaysia are owned and managed by families.

These family-owned companies are big in size and their founders have mostly handed over the baton to the second generation. Genting Group, IOI Group, YTL group, KLK group, IGB group, The Oriental Group and Hap Seng group are some of the examples.

Apart from Genting Group, YTL group has also expanded way beyond its construction business and outside the country. Today, it has substantial interests in the utilities sector, cement industry and construction of rail-related assets.

But YTL group also has high gearing. As at March 31 this year, YTL group’s debts stood at RM45.9 billion against cash of RM17 billion. The third generation is already in the business and it will not be long before they take up the reins.

While YTL group has expanded by utilising its balance sheet, on the other end of the scale is cash-rich Oriental Group.

Its third generation has already taken over the business founded by the late Tan Sri Loh Boon Siew and which has not grown over the years. Oriental Holdings Bhd (KL:ORIENT) was sitting on net cash of RM3 billion as at March 31, and has not made any major expansion beyond the motorcycle, automotive, property development and hospitality businesses.

The family is enjoying the dividends and has not done much work on the balance sheet.

However, in recent months, the Loh family has seen changes in Oriental’s shareholding structure following an internal revamp. The families based in Penang hold the majority stake in Oriental via a private company while the families based outside Penang hold their interest in the listed company directly.

Whether or not the internal restructuring leads to the third generation sweating Oriental’s assets is left to be seen.

Generally, family-managed companies are able to keep their business affairs private and succession is rarely talked about.

They pride themselves on taking a long-term view of investments but at the end of the day, the successors are measured by their ability to grow the business and make it stronger.

M Shanmugam is an contributing editor at The Edge

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