You must know when to say no .......

Yesterday, it was all over the media that the group CEO of Sime Darby has more or less been sacked. The reason was that Sime Darby had sufferred a loss of RM 1.6 billion. Most of the losses, if not all, were attributed to Sime Darby's energy adventures in Bakun and Qatar.

What I know about Sime Darby is that it's more associated with the plantations industries - oil palm, rubber, cocoa, and so on and less so in other industries such as property, insurance, automative, heavy equipment - though they are by no means insignificant - and smaller businesses such as those in companies under the so called Region such as the Malaysian Region, Australian Region, Hong Kong Region and so on.

One thing these companies, big or small, have in common is that they operated at a profit, big or small. A company that does not meet certain criteria even though the company makes a profit will face the axe. The Sime Darby management then had no compunction to take drastic action against those who fail to fulfill certain profitability requirements.

Another thing was that Sime Darby never got itself involved in government contracts. Imagine that during days (i.e. before the merger), Sime Darby never undertook a single JKR contract when it was in a position to do so. It would rather be involved in trading, planting, building houses, selling cars and heavy equipment and other businesses that are long term in nature. Even their overseas adventures were more less similar to their local industries such as plantations in Indonesia.

Yet one type of long term industry seemed to have missed Sime Darby. It's the banking industry in which one has to have a license from the government to run a bank. Not that Sime Darby had not tried to acquire a license but that somehow the government then was reluctant to give one. Finally, Sime Darby managed to get a license, albeit in a roundabout manner, for it has to acquire a majority stake from a shareholder who had a majority stake in a financially troubled bank called United Malayan Banking Corporation (UMBC). Not that Sime Darby wanted the license in a roundabout way because, I believe, it was armtwisted into buying from the stakeholder(s) by a couple of unscrupulous but extremely powerful politicians. So, Sime Darby finally got a bank which later got involved in unpaid loans. It changed its name to Sime Bank and later disappeared from the general public. That was the last time that Sime Darby ever ventured into the banking business. Although Sime Darby did not make a group loss, its cash flow was depleted to the tune of about RM 1.8 billion or something like that. The poor CEO then had to travel all over the place to explain to Sime Darby shareholders what had happened. Finally the poor fellow left and his position was taken by the fellow who had just been sacked.

How Sime Darby got involved in a construction contract is a mystery, knowing Sime Darby had so far been keeping at arms length any proposals for it to be involved in construction for it believed, quite rightly, it had no business in competing with its customers, since Sime Darby itself is involved in supplying construction equipment and supplies to its customers. So competing with them is a no-no venture. So, by some twist of fate, Sime Darby was awarded a tender to build the Bakun Dam in Bintulu Sarawak, at the lowest bid of RM 1.788 billion. When projects were worth billions, they looked as if there's a lot of money to be made. In reality, however, the project was so big, so complicated, and so uncertain that the tender sum is paltry compared to the other bidders that at once anybody would say only crazy contractors would be prepared to undertake the job.

The Bakun dam has an interesting history. If anybody who wants to build a dam in Sarawak, then Bakun is the place for the topography is just about right to impound a large body of water (so large that it's always touted that the whole of Singapore Island can be drowned in it, much to the chagrin of Singaporeans when you are arguing with them in a pub). Not only that, the water can be harnessed to generate electricity - 2.4 gigawatts in total. The early phase of construction involved the building of a koffer dam and the construction of a diversion tunnel, apart from other mundane things like clearing the area of timber and dislocating the native population. Why a koffer dam ? Well, before you could build the main dam and the power generating facilities on the river bed, you need to divert the water first through the diversion tunnel and the koffer dam serves as a barricade to force the water into the tunnel so that the main dam can be built on a dry river bed located farther downstream. The first phase of the Bakun Dam contract was thus given to a local Malaysian company together with a Korean company. The koffer dam built by the Malaysian company looked as though the rock materials used were of poor quality, being brought there by 15 tonner lorries that could only handle rocks of less than 16" or so in size. To be fair to the contractor, it served its purpose of damming up the Bakun(?) river. The Korean contractor however did a marvelous job in building a solid, well designed diversion tunnel that could easily handle all the timber flotsam and the raging river swollen under heavy rain.

It was just as well that the first phase was completed for in 1997/1998 countries of South East Asia was hit by a financial crisis that prompted the Malaysian government to postpone further works on the Bakun Dam. It was not until 3 or 4 years later when the crisis was at its tail end when the PM of Malaysia decided to have a second look at the dam project for, after all, it was his idea to build the dam in the first place. To be sure, this time there ought to be an international tender for the project was too big to award to a local contractor through what was a popular practice then by negotiated tender. Through its subsidiary, Sime Engineering, Sime Darby was roped in to participate in the tender in partnership with China Hydro and another local company. To be sure, the Bakun Dam project was slightly scaled down to generate 900 megawatts of electricity instead of the original 2,400 megawatts by installing 3 turbines of 300 watts capacity each instead of 8. Nevertheless, the original design should remain the same to allow for future expansion. With that in mind, Sime Darby and its partners bid for a sum of RM 1.788 billion, beating its nearest rival who bid RM 2.5 billion plus. When the bid results were announced, all the other participants were left wondering as to how it was unthinkably possible that anyone could undertake such a huge project for less than RM 2 .5 billion and yet it it was so. The same CEO who was involved in the bank fiasco didn't know how to say No ! to those who proposed that Sime Darby be involved in Bakun. He could easily have said "so sorry Sir, but we're not into the construction business and want out" . But by the time he left, Bakun had already started and the next CEO who is now sacked merely inherited what was a bad venture. He didn't say No ! either because he was of the same mould. In order for Sime Darby to be successful in the future, the next CEO should not have any qualms to tell anyone especially the politicians to "fuck off".

Now Sime Darby has an ex-politician for a chairman. I don't know what he does except for chairing a board meeting. As a deputy PM at one time, he was not really a good minister and one who's tainted with personal weaknesses; so much so that he was asked to leave the cabinet. Now he thinks of himself as a great leader of a business conglomerate. By dismissing the CEO, he reckons that he is a no-nonsense decision maker when he should dismiss the entire board at group level including withdrawing himself from the chairmanship position. The next CEO of Sime Darby should be of the stature of a Hassan Marican or an Ismail Ali - bright, absolutely honest, and with the strength of character and self confidence to say NO - and only then would Sime Darby be able to progress in the way that it has been successful in business since 2 Mat Sallehs by the name of Mr Darby and Mr Sime started the company many, many years ago.

Update 19/05/2010: I was right after all to state that the price of RM 1.788 billion at which Sime Darby bid for the Bakun project was too low for the contractor (or anyone for that matter) to make money. It came from the horse's mouth itself. In reality, the cost overrun had been RM 900 million on top of the RM 700 million that the government had added to the tender bid which would be RM 3.388 billion for the contractor to break even, never mind that the project had been delayed for about 3 years.

Update 06/06/2010: An interesting article, written by one Paddy Bowie, appeared in the NST today on Sime Darby. No, it's not about the group but about the two Mat Sallehs who started it all. William Middleton Sime was a golf and whisky loving Scottish who came to Malaya and Henry Darby, born in 1860, came from a family of aristocrats in England. Darby tried his hand at planting coffee but failed while Sime was looking for land to plant rubber. I was told at one time that the two met in a secondary jungle and, presumably over a drink of whisky, started the company way back in the early 1900s in Melaka.

The sterling pound's fate ...

When the Malaysian Ringgit (MYR) plunged to RM 3.80 to the US dollar in Sep 1998, it was a plunge of 35.2 % from a position of RM 2.50 per one USD. Today, I noticed that the sterling pound (GBP) dropped by 35.3 % from a position of RM 7.00 per GBP to the current of RM 4.60. The Euro did not drop as much, merely by 20 % from sometime ago when it was RM 5.0 to the present of RM 4.0.

During those days when my uncle was a student in Britain, one mighty pound was worth RM 8.57 Malaysian dollar. The British students then were very proud of the pound as it was sterling indeed. But over the years, the pound went down to RM 6.80, then RM 6.00 and eventually to as low as just above RM 4. The British people that were in Malaysia then were walking about with drooped heads.

And now, the pound is back to where it was with respect to the MYR. In fact, even worse off than before since the MYR had in the meantime dropped to 3.3 to the USD. If the MYR had not sufferred in the Asian financial crisis and had stayed at RM 2.50 to the USD, the pound's rate would be RM 3.02 - and this is a mighty drop of Britain's financial status.

As I suggested before, it's a good idea to physically buy the GBP and the Euro in anticipation of their future gains against the MYR, because they will not stay low forever.