September 30, 2002

YTL in Hot Water
'Why would we jeopardize relations with our customers? That would be stupid.'

By Eric Ellis

Francis Yeoh reckons he does business with a huge advantage. "Christ is my wise advisor," the 48-year-old Malaysian tycoon says.

Not only does his advisor not charge like an investment banker, but, as Yeoh puts it, he also has helped grow Yeoh's YTL group tenfold over the past decade into a property, infrastructure, and technology giant with assets of $6 billion.

Earlier this month, Yeoh says, a miracle--or maybe a rumored $1 million fee--brought Luciano Pavarotti to Yeoh's private island south of Penang to perform La Boheme arias on the beach before an audience of 200 business and political leaders.

But a decidedly earthly affair has put the spotlight on Yeoh. His YTL Power beat out a host of better-known bidders in March to snag Britain's Wessex Water for $1.8 billion.

Based in Bath, the water and waste utility more than doubled YTL Power's revenues and gave Yeoh instant credibility as a multinational utilities player. Then, on Aug. 22, British police swooped in at dawn on Wessex chairman Colin Skellet's home, arresting him for allegedly accepting a $1.5 million bribe to steer Wessex into Yeoh's hands. The stock of YTL Corp., the group's central entity, has dropped 12% since Skellet's arrest.

It's enough to drive anyone to seek divine intervention--but then Yeoh has been doing that for years.

The first Yeoh in a long line of Buddhists to embrace Christianity, he opens business lunches by saying grace and closes deals with prayers. He credits being "born again" in 1971 with keeping him from succumbing to "third-generation syndrome"--the Chinese saying that the third heir of a family fortune will squander it.

In fact, YTL sputtered after Yeoh took the helm in 1978. It wasn't until 1986, when anxious younger siblings groused that he spent more time with the Bible than with company books, that Yeoh focused on his job.

Riding Malaysia's booming economy, YTL expanded from construction into hotels and power generation. Last month YTL Corp. reported profits of $98 million on revenues of $681 million for the year ended June 30, up 13% from the previous year, while YTL Power (60% owned by YTL Corp.) said its profits rose 11%, to $127 million, on revenues of $395 million. "That's God's good work," Yeoh says, "and a lot of our hard work."

It helps that Yeoh is known as Malaysian Prime Minister Mahathir Mohamad's favorite ethnic-Chinese businessman. But he also times his deals well and keeps borrowing and costs under control.

For example, YTL's airport railway in Kuala Lumpur, a copy of London's Heathrow Express, was built for a fifth of the cost, travels twice the distance, and charges half the ticket price. "The market likes him because he delivers ahead of budget and schedule," says advisor Michael Carapiet of Sydney's Macquarie Bank.

Wessex is meant to help Yeoh reach beyond Asia and Australia and launch new deals in Europe and North America. But given the competition in the bidding - the short list also included the Royal Bank of Scotland, Li Ka-shing's Cheung Kong Infrastructure, and Italian utility Enel - Yeoh's win startled nearly everyone. London's Sunday Telegraph screamed 'WHO THE HELL ARE YTL" (Yeoh proudly put the story on YTL's website.)

That may be why the City of London Fraud Squad took action when Barclays Bank tipped it off about a $1.5 million deposit into Skellet's account. And it didn't help that Wessex was previously owned by Enron. But Yeoh and Skellet both say the money was a "golden handcuffs" payment to retain Skellet, who has worked at Wessex for 28 years.

Skellet told FORTUNE that of the four bidders, he had preferred the Scottish bank. "After three years saving the company from Enron," he says, "we wanted to be back in British hands." Insiders at Schroder Salomon Smith Barney, which handled the deal, say it was the higher cash component in YTL's offer that won the day. Free on bail pending further investigations in Malaysia and the U.S., Skellet says the police made a "terrible mistake."

Yeoh has not been charged. He is confident that the matter will soon be forgotten and that his reputation for integrity will be restored. "Why would we jeopardize relations with our ten million customers around the world?" Yeoh asks. "That would be very stupid."