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Friday, November 30, 2012

The journey in life is never a straight line (PART 6)


Actually, I blame the banks for all this. Back in the 1980s, around ten years after starting my business, bank managers were coming to see me to invite me to lunch. They would practically beg me to ‘give them some business’. Over lunch they would confirm RM2 million or RM3 million without even asking me what I would do with the money.
NO HOLDS BARRED
Raja Petra Kamarudin
People assume that since I am Malay therefore all my business must have come from government contracts. That is stereotyping and as ‘fair’ as assuming that since you are Indian you are a drunkard who beats his wife or since you are a Chinese you are dishonest because you worship money.
I do not deny that I did do some government business. Even Chinese and Indians do government business whenever they can. So this is not really a crime. Nevertheless, over 20 years from 1974-1994, my companies did about RM300-350 million in turnover with maybe about 20% of that in government contracts.
And government contracts are really not that profitable, mind you. Sometimes we get away with a profit of only 2.5%. To make 10% or more from a government (supply) job was a rare thing indeed, especially in those ‘early days’.
Government jobs are good when you need to go to the bank to raise funds. If you won, say, a RM30 million government contract, this would allow you to borrow RM6 million or even RM10 million.
In those days, even when I did not need the money (since the supplier gave us credit of 60-90 days anyway), I would still go to the bank to borrow. I would use the funds and then pay back what I used within the same month. This would impress the bank like hell -- although they are not too happy with this since they would earn very little when you pay back almost immediately.
The reason I did this was so that, next time, when you really do need funding, you can go back to the bank and get a loan. In the beginning I borrowed RM2 million. By the time I decided to call it a day, I was rolling with RM20 million, all borrowed funds.
Actually, I blame the banks for all this. Back in the 1980s, around ten years after starting my business, bank managers were coming to see me to invite me to lunch. They would practically beg me to ‘give them some business’. Over lunch they would confirm RM2 million or RM3 million without even asking me what I would do with the money.
You see, branch managers had a quota to fill and they were trying to use me to fill their quota. So they would offer me facilities in the millions even though I did not need the money and would not have known what to do with it anyway.
Once I was even invited for lunch in the executive suite of HSBC in Kuala Lumpur. The Kwailo then asked whether his bank ‘could be off assistance’ to me. He then offered me RM3 million and instructed his Chinese officer to follow up on this ‘application’.
The Chinese officer followed me back to my office and sat down with me to work out the details. But we had one problem. We could not justify the facilities. In other words, we could not show that I needed the money. After cracking our heads for an hour, I told the officer to just forget it. Actually I don’t need the money.
I felt good to be able to tell HSBC that I don’t need their money. That boosted my image and even more bank managers came a courting when they found out that I told the Kwailo from a Kwalio bank that I don’t need their money.
Yes, bank managers get an orgasm when you tell a bank you don’t need their money.
It came to a stage that all I needed to do was to phone the MD or GM of the bank and over the phone I could raise a million or two with no questions asked. Of course, I was not the only one enjoying this VIP treatment. All over town banks were throwing money our way.
Then, in mid-1980, the folly of this attitude hit us. Many of us were over-geared. No doubt our loans were ‘backed by assets’. But these so-called assets were ‘paper assets’. They were stocks and shares trading at ten or twenty times their value -- or worse.
No one cared about PE ratios. In the UK, you may be looking at PE ratios in the single digit. In Malaysia (plus Singapore and Hong Kong) the PE ratios of the ‘darlings’ of the stock market were sometimes in the triple digits.
That was crazy. Banks should not have touched such company shares with a ten-foot pole. But who thought that the bubble was going to burst? We were on a roller coaster ride and it was going up, up and up. Then, in 1985, it went down, down and down.
It was then that I understood the meaning of ‘fair weather bankers’. They invite you to lunch and beg you to borrow from them when you do not need their money. However, when the market turns, they become your ‘wakeup call’ early in the morning when they phone you to inform you of the ‘margin call’.
If you do not ‘top up’ by the time the market opens for the day, expect them to ‘force-sell’ your shares. And the more they force-sell the more depressed the market gets and the more depressed the market gets the lower your shares go and the lower your shares go the more margin you need to top up -- and so on and so forth. It basically becomes a vicious cycle.
Now that you need the money the banks no longer want to deal with you. The banks do not want to give you money because you need the money. They only want to give you money when you do not need it.
I was only 35 then and about ten years in business. But I was very rapidly finding out that another word for ‘banker’ is ‘shark’. When they smell blood they go into a feeding frenzy. And when you are floundering in the water trying to keep your head up so that you do not drown, these sharks come up from behind you and bite off your balls.
Yes, we were greedy. I admit that. We may even have been inexperienced and were taking too many risks. But when you are still quite young and new to business, you tend to be like this. That is what being young is all about.
But the banks were also greedy. These banks that have been around for a long time and have seen many recessions come and go should have practiced prudent banking. They should have known that bubbles eventually burst. And they should not have been the ones to inflate the bubble and then, as soon as it shows sign of deflation, they prick the bubble by pulling the rug from under our feet.
Many suffered. Almost everyone, regardless of race, collapsed. Many saw their companies change hands. Some were even unfortunate enough to end up in jail. As I said, at 35 I could afford to pick up the pieces and start all over again. Those who no longer had the luxury of time chose the easy way out by ending their life.
We would have imagined that by 1985-1987 the banks would have learned their lesson. Apparently they did not -- as 1997 and now, 2012, have proven. Banks will still be banks and risk-takers will still be risk-takers.
I am just glad I am not longer in that game where we live day-to-day with the fear that when we wake up the following morning we are going to find out that the bottom has fallen out of the market.
As they say: let the borrower beware.
TO BE CONTINUED

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