Cover Story: ‘Entrepreneurship is about trying new things’

This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010

When you have to sell, you have to sell. You have to sell to pay the banks. During the crisis, when you needed the umbrella the most, and when it rained heavily, they took away the umbrella.

An oft-discussed issue is the under-valuation of Berjaya Corp Bhd, helmed by chairman and CEO Tan Sri Vincent Tan.

Based on sum-of-parts valuation, BCorp — the holding company of an array of assets ranging from property to gaming and leisure — should be worth much more. But the market does not accord the group’s assets the value they deserve.

However, Tan says there is a new gem in Berjaya Group in the form of Cosway, which is shaping up to be the biggest business he has ever built up.

In an interview with the The Edge, Tan explains why Cosway will be the biggest thing for Berjaya in the years to come. Below are excerpts of the interview.

Cosway has an ambitious plan to open 3,000 new stores in the next two years. How does it plan to fund the expansion?

It doesn’t require much capital, because it is a marketing business. We can handle such an expansion using internal cash flow. But of course, we would also like to pay some dividends to shareholders. Cosway has virtually no borrowings. So we can, for example, give half or three-quarters of profits as dividends and use the remainder of the cash flow to grow the business. But if there are immediate opportunities and we need bigger capital to grow, we can borrow some money. Cosway can gear up. With its track record, I think a lot of banks, whether local or overseas, would want to do business with Cosway.

So to your question, funding is not a problem. For instance, to set up in China, the government actually requires us to own some factories there to produce some of the products. Why not? Even if we invest RM300 million to RM400 million there, it is not a problem. We can raise the funds through our own cash flow or borrowings. We could also place out new shares, but we don’t think this is necessary.

What is the sourcing strategy for Cosway?

We prefer the OEMs (original equipment manufacturers) to manufacture for us. We get top manufacturers and suppliers to produce for us, from Taiwan, South Korea, Japan, Europe, Italy, the UK, France and also the US. Let’s say later we go to Turkey, we will also source some products there. We would support the local industry by helping them to export. I am sure there will be some good products that we can sell within that country and also abroad. So we are like an import and export company, but at the same time, we do direct distribution to the consumers. So, when you come to Cosway, you can buy products from all over the world. But of all the products we sell, we label them with our own brand names, such as Bioglo and Oriyen. These brands are owned by Cosway.

Would you not relist Cosway at all, and keep it as BCorp’s core business?

To give recognition to the value, we need to list Cosway. If I keep Cosway in BCorp’s books, everybody would think it is only worth RM300 million to RM400 million. And they are not wrong, because I delisted Cosway (in 2007) on the basis of about RM400 million, and that it had other business inside also, such as Singer. So we delisted it. Two years later, a US investor came [wanting] to buy 10%. So I said RM100 million for a 10% stake, because I valued the company at RM1 billion at that time. The investor said, why so expensive, because we just delisted it for so little money. I said, yeah, that was why I delisted Cosway, because nobody wanted to buy the shares. So if you want to buy, it is RM100 million for 10%. So at the end, he agreed to pay RM100 million for 10%. So straight away, someone had valued Cosway at RM1 billion. Now Cosway is worth some RM4.8 billion, that investor is up 380% on his RM100 million investment.