UFA

Stanley Ho’s secret weapon

Is the game up for Macau’s 80-year-old casino billionaire? Don’t bet on it. Watch the share price of his Hong Kong-listed company – and the performance of his glamorous socialite daughter, Pansy

By: William Mellor

IT’S tempting to write off Stanley Ho. Last year, the old man turned 80 without naming an heir and having just threatened to disinherit his daughter, Pansy, the most senior ranking family member in his business empire. Then on March 31, after 40 years, he officially lost the fabulously lucrative Macau gaming monopoly that made him a multi-billionaire. Soon, he will be competing against two of Las Vegas’s most successful gaming tycoons, who are pledging to plough more than $1.6 billion into rival casinos in the former Portuguese colony.

Adding to his problems, monopoly-bred complacency means Ho’s operations now look embarrassingly old-fashioned. Macau’s government and its Beijing masters want a wholesome form of gaming-based tourism that will lure families and convention business as well as hard-core punters. One of Ho’s Las Vegas rivals, tycoon Sheldon Adelson’s Galaxy Casinos, will offer an indoor version of Venice’s Grand Canal complete with singing gondoliers. The other, Steve Wynn of Wynn’s Resorts, is pledging to create “a Disney for adults”. By contrast, Stanley Ho’s 10 casinos exude unadorned sleaze.

At the packed tables at Ho’s flagship Hotel Lisboa, there is desperation not fantasy and glamour. Triad loan sharks circle the punters, ready to bail out losers with loans that rack up interest by the hour. Outside, a globalised prostitution industry – Thais, Filipinas, Vietnamese, mainland Chinese, even peroxide-haired Poles – UFA operates out the hotel’s shopping mall and guest rooms eager to relieve punters of what the croupiers already haven’t. At the Lisboa’s star cabaret attraction, the Crazy Paris show, big-bosomed, cellulite-buttocked semi-nude Russian dancers attempt, pitifully, to reprise Nicole Kidman’s performance in the film Moulin Rouge before bemused audiences of Chinese tourists.

Meanwhile, one of Ho’s oldest business partners, the politically powerful Henry Fok, has announced he wants out and will sell his 27 percent stake in the secretive Sociedade de Turismo e Diversoes de Macau (STDM), the privately-held company Ho set up in 1962 to run his Macau empire. Time, then, for Ho to call it quits and retire to his mansion overlooking Hong Kong’s Repulse Bay to enjoy family life with his 17 children from four wives? Perhaps not. Amid the hype surrounding what the Macanese refer to as the Second Handover, something surprising has been happening to the one Stanley Ho company in which the public can invest, Hong Kong-listed Shun Tak Holdings. Its shares have taken off. And the family member Ho has put in charge of running it, 39-year-old Pansy, is not only now reconciled with her father, but also looking increasingly likely to become his successor. And, just possibly, a serious rival to the Las Vegas interlopers. “I have to take the initiative,” Pansy Ho told me in an exclusive interview. “A lot of people are depending on me.”

Shun Tak, a mid-cap company that does not feature on the benchmark Hang Seng index, owns only five percent of STDM, the private company through which Ho operates his casinos. But it is massively involved in the former Portuguese colony.

Its shipping division, which operates one of the world’s largest fleets of high-speed jet foils, virtually monopolises (92 percent market share) the ferry services that ply 24 hours a day between Hong Kong and Macau. It owns the sole helicopter service on the same route. It has controlling stakes in two of Macau’s best hotels, the Mandarin Oriental and the Westin Resort, and has so many tourism-related joint ventures with STDM that the two companies’ fortunes are inextricably entwined. In 1994, during a boom year for Macau tourism, Shun Tak’s shares peaked at HK$9.40 (US$1.20) before plunging in value by 95 percent over the next four years. As recently as last September, they were trading at just HK$0.75.

So the ending of the casino monopoly, and disclosure that Ho will be challenged by two of Las Vegas’s most outstanding entrepreneurs, might have been expected to precipitate a further fall. Instead, in February Shun Tak’s shares shot up by almost 50 percent. And a flurry of analysts’ reports in recent weeks suggest that is just the beginning.

“Shun Tak is massively undervalued,” declared Eric Yuen of Hong Kong-based Dao Heng Securities in a February 22 report that noted that even after the price surge, the company’s shares were still trading at a 60 percent discount to its book value. Yuen predicts the share price could rise another 30-45 percent. JP Morgan analyst Matthew Mo, sees similar upside, as does Raymond Jook of E2 Capital Holdings, who said last month that the deep share price discount compared to the company’s net asset value was unjustified.

What makes these analysts and investors who are pumping money into Shun Tak so optimistic? The answer in part is that they all believe that far from being put out of business by his new rivals, the still-sprightly Ho will in some ways benefit from the competition.

Aldelson’s Galaxy, which operates the Venetian casino in Las Vegas, has pledged to invest $1.1 billion in Macau to build a casino and trade and convention centre on Taipa Island, complete with a Venice street, canal and those gondoliers. Wynn is promising “no less than” $500 million to be spent on two casino-based entertainment complexes. Ho himself has been forced to commit $585 million over five years to upgrade his operations. That means an extra $2.2 billion-plus being pumped into a tiny territory with a population of just 460,000.

Tourism numbers that topped 10 million last year are set to rise significantly, analysts say. And even though Ho could lose a big slice of his casino profits, he has so many other businesses in Macau that he cannot fail to also profit from the resulting economic growth, they contend. Indeed, even if you don’t gamble at Ho’s casinos, it is virtually impossible to visit Macau without putting money into the old man’s pockets. Through STDM, Shun Tak and another company, Florinda Hotels, Ho owns virtually every hotel in Macau. And in addition to his stranglehold on the 65-kilometre sea route across the Pearl River delta that is the main gateway to Macau, Ho is also the largest shareholder in the territory’s airport and airline, Air Macau.

He controls the largest department store, New Yaohan, one of the territory’s biggest banks, Seng Heng, horse and dog racing tracks and is a player in virtually all the major real estate and infrastructure developments. His company even has the contract to dredge Macau harbour of the Pearl River silt deposits that would otherwise choke it. Such is his influence that in 1998 he became the first living Macau resident to have a street named after him. And little wonder. He employs 12,000 Macanese and the gaming taxes he pays account for 61 percent of the territory’s GDP.

True, publicly-listed Shun Tak is far from being a pure Macau play. It also benefits from property development in HK, notably the Belchers residential and commercial complex on Hong Kong Island and Liberte in Kowloon. Both these projects are joint ventures with the real estate giant Sun Hung Kai Holdings run by the billionaire Kwok brothers and, despite Hong Kong’s property slump, are tipped to start earning serious money from apartment sales this year. But as JP Morgan’s Mo notes: “While the short-term prospect for Shun Tak Holdings would depend on the response to the property development sale, on a medium to long-term horizon, the new gaming licences in Macau hold the key.”

More crucial, though, is who will be running Ho’s company once the founder finally leaves the scene. Until now, Ho has acted as if he is immortal and has yet to name a successor. “He never speaks of it, and because of his age I have never felt it proper to ask,” Ho’s long-time trusted aide, Julie de Senna Fernandez, told me recently.

Despite a hip replacement, Ho still indulges his passion for ballroom dancing and tennis and three years ago, at age 77, sired his 17th child by his fourth wife, Angela Leung, a glamorous mainland-born former dancing instructor. As a manager, he remains hands on. Last year, when I asked Ho’s nephew, Hotel Lisboa general manager Alan Ho, 54, how long he had been in charge of the family’s Florinda Hotels group, he replied drily: “When you work for Dr Ho, there’s no such thing as being the boss. His presence is felt in every part of his empire.”

But Ho’s investment plans to thwart the Las Vegas challenge have a five-year time frame. Could he possibly still be running the group at age 85? That’s where Pansy Ho, 39, comes in. Until recently, the idea of the petite Pansy taking control of one of Asia’s toughest businesses would have seemed ludicrous to most observers, even to his closest aides.

For a start, Pansy is only the fifth child (by Ho’s second wife, Lucilla). In Hong Kong, she is still better known as a party girl than a business woman. And as recently as two years ago, Ho threatened to disinherit her after she split with her husband and began a liaison with playboy Gilbert Yeung, the son of Albert Yeung, a business rival of Ho.

But unnoticed outside the Ho family, Pansy has quietly been trying to extricate herself from the gossip columns and into the business pages. The boyfriend is now history. And a closer examination of her personality, achievements and vision for Macau suggest she might, just might, be able to give Steve Wynn and Sheldon Adelson a run for their money. Says Julie Fernandez: “Of all the children, Pansy is the one most like her father. She has his determination and strength.”

Stanley Ho, who inherited nothing from his father, appears not yet convinced. While avoiding throwing any more light on the succession, he did offer me a brief appraisal of Pansy’s performance to date. “I am confident in her abilities, but I believe there is always room for improvement,” he said late last year. “Should you ask me how many marks she deserves now, I say 80. She has to work harder and keep improving herself to win the other 20 marks from me.”

Pansy certainly has some achievements to her name. A graduate of Santa Clara University in what is now Silicon Valley, Pansy at first showed no interest in joining the family business. Instead, with a partner, she set up a high society events promotion company.

Then, in the mid-1990s, Shun Tak’s share price started to collapse and its shipping revenues fall. Pansy and a younger sister, Daisy, who worked in Shun Tak on the finance side, decided their ageing father needed Pansy’s marketing skills in the listed company. Soon promoted to general manager of Shun Tak, Pansy negotiated a $200 million merger with a rival fast ferry company that also operated the Hong Kong-Macau route. The deal was highly successful for Shun Tak. It ended up with 71 percent of a joint venture controlling what has become one of the world’s most profitable shipping routes.

That earned Pansy further promotion to managing director, where she turned her attention to Shun Tak’s then-troubled property division, turning that around also. In 2000, Shun Tak’s profits rose 8.6 percent to $35 million on a turnover of $422 million. Profit in the first half of 2001 fell slightly, but Dao Heng analyst Yuen believes the full-year result, to be announced this month will be good. “The final dividend could be a positive surprise and convince investors that Shun Tak is a sustainable, high-yield stock,” says Yuen.

But Pansy’s biggest challenge remains in front of her. And her vision for Macau is similar to that of the Macau government and her new Las Vegas rivals. “I have to admit Macau is sleazy,” she says of her father’s creation. “It must become family-friendly and conducive to corporate activity.”

So far, she appears to be practising what she preaches. In November, she completed her biggest Macau project, constructing the $150 million, 338-metre tall Macau Tower Convention and Entertainment Centre.. While Galaxy’s Adelson talks of completing his trade and convention centre in three or four years, Pansy’s admitted smaller version is already in place.

But given Stanley Ho’s notorious hands-on style, and the fact that he remains chairman of Shun Tak as well as STDM, how much power does Pansy Ho have to further sanitise her father’s Macau operations? As a young woman, she deferred to him when he asked her to take a business degree instead of a liberal arts course. She even took it on the chin when he publicly demanded she end her relationship with Gilbert Yeung – “I was very upset and disappointed and hurt but he was defending his own business.” But now she says she stands up to him in the board room when she believes he is wrong: “It’s my duty – whether it pleases him or not.”

Really? Technopreneur Alex Kong, CEO of Asia TravelMart, a Malaysian online company that operates a joint venture internet travel business with Shun Tak, confirms her independence at Shun Tak. “She calls the shots,” he told me.

But will she ultimately inherit the entire empire? Other family members also work in various Ho companies. Sisters Daisy and Maisy are both also on the board of Shun Tak and brother-in-law Peter Kjaer, who is married to a daughter by Stanley’s first marriage, runs Dr Ho.com, an online casino. Son Laurence, 25, operates an online financial services company and Ho’s 40-year-old fourth wife, Angela, is said to be a shrewd and ambitious businesswoman. Angela and Pansy are reputed to have had a strained relationship in the past, although a highly-placed source says: “At least now they talk.”

When asked about the succession, Pansy, perhaps sensitive to family politics, talks diplomatically of her father having many years ahead of him and that when the time finally comes, there will be many good people in the group able to work together to ensure a successful transition. But when it is suggested to her that she might not be interested in moving from Shun Tak to take over the gaming empire, she responds quickly that that is not the case. “It’s just a business,” she told me. “But I have a different vision.”

As Stanley Ho contemplates the biggest battle of his long and colourful career, Pansy’s vision may be the secret weapon that ensures the family’s corporate survival.

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