Business

Michael Lee Chin: setting new heights for investors

BY MOSES JACKSON

Sunday, November 14, 2010    

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AT his press conference on Friday, January 11, 2002 to announce the sale of National Commercial Bank (NCB), Dr Omar Davies is uncharacteristically muted.

With ritualistic dispassion, the finance minister signs the memorandum of understanding that an aide discreetly slips onto the table directly in front of him. He methodically slides the document to his right, making sure it remains open to the page that will bear the signatures of the counterparties to this far-reaching transaction he is about to announce.

Finally, Davies can publicly declare that he is nearing the end of the nightmare that has bedevilled his administration, and, for that matter, the entire Jamaica dating back to the 1995 collapse of the Blaise Trust group of companies.

"This transaction represents the most significant milestone in the programme of financial sector rehabilitation pursued by this government since 1997," says the minister. "On completion, the government's dominant ownership role in the banking sector will be a thing of the past."


As the signatories stand for the usual grip-and-grin photo ops, a burly figure towers over Davies and leans forward — his right arm already extended in anticipation of the handshake; it is noticeably robust and prolonged.

Up until that moment, Michael Lee Chin had remained Jamaica's best-kept entrepreneurial secret.

By the next day, people from all walks of life began ingesting the news that a billionaire investor with an infectious trademark smile had been handed the keys to their iconic national institution.

Born in Anchovy, Portland in 1951, Lee Chin spent all his adult life in Canada where he was educated as a civil engineer, worked odd jobs until he found his footing as a fund manager through which he ultimately amassed his fortune. He was back "home" in dramatic style and now had plenty reasons to permanently display his signature smile.

With the backing of his Can$15-billion fund management empire, called AIC, an estimated US$2 billion in personal net worth, plus an irrevocable claim to Jamaican heritage, Lee Chin must have cast an imperious and intimidating shadow over the negotiating table for an asset that the government was anxious to return to private hands.

How else could one explain such an auspicious outturn to these negotiations — from the point of view of this investor?

He walked away with 76 per cent of NCB on a down payment of US$56 million, the equivalent of little more than the profit the bank turned over within half of that year. The full purchase price was US$127 million (J$6.03 billion) but that was almost academic because it was payable over nine years, on favourable terms — the outstanding balance attracting treasury bill interest rate.

At $4.08 per stock unit, Lee Chin negotiated a discount on the company's already depressed market value of $4.90; he paid the equivalent of just over 80 per cent of the net book value of the bank.

What is also noteworthy is that by the time this deal was struck, NCB had largely been rehabilitated; the government having injected $50 billion into its coffers in the form of interest-bearing treasury bills, in exchange for a huge portion of the non-performing fixed assets that had been hobbling its performance.

By the end of the financial year to September 30, 2002, NCB posted profit of $1.96 billion, and over the next six months to March 31, 2003, made another $1.47 billion. For the year that ended September 30, 2009, the bank made $10.2 billion — ranking it among the two most profitable publicly traded institutions in the country. It reported net profit of $11.1 billion for the 12 months to September 30, this year.

Given the mind-boggling numbers that this firm has been churning out over the past several years, there is always an irresistible temptation to view the acquisition through the coloured vantage point of hindsight. For many, the unavoidable conclusion, of course, is that this was a classic vulture investment — picked up on the cheap.

From his reading of the unvarnished financial data, business analyst John Jackson is among those who have come to that conclusion. "NCB was given away on a platter... a virtual gift," he charges.

Of course, not everybody agrees.

"Lee Chin took a gamble that has worked out," responds Dennis Cohen, NCB's group deputy managing director. "In hindsight, people have comments to make, but hindsight is better than 20/20."

Wayne Chen, businessman, NCB board member and brother of Lee Chin, warns against any assessment of the investment that fails to give sufficient weight to the broad economic context within which the AIC owner was willing to pump billions of dollars into the Jamaican economy.

"At the time nobody wanted the bank," Chen asserts. "Advisors from HSBC were shopping all over the world and could not find an interested party. In fact, I can recall an international banker telling me at the time that if he held shares in any bank that had NCB stocks, he would sell those shares. The point is though, at the end of the day, an asset is worth what someone is prepared to pay for it."

During the negotiations for the sale of the bank, Patrick Hylton was managing director of Finsac, the agency used by the government to shore up troubled financial institutions including NCB. He is therefore likely to know more about the deal than most people, and offers a poignant insight into the general state of the environment, and the challenges faced by the government at the time.

"We could not even find an investment banker who was willing to sell the bank, given the government's mandate, much less to find a buyer," he notes. "One banker said that his company could not afford to put its reputation on the line by taking this deal to the market."

Hylton, who has been group managing director of NCB since 2003, shares another piece of information that throws new light not only on Lee Chin's maverick approach to investing and willingness to buck conventional wisdom, but the extent to which he was prepared to go on a limb to invest in Jamaica.

"In fact, I'll tell you something," Hylton lets on, "Lee Chin hired his own professional advisors who after their due diligence advised him not to buy the bank."

In fairness to critics like Jackson, they have always made it clear that their disappointment is never directed at this investor. Jackson himself acknowledges that Lee Chin's effectiveness at the bargaining table underpins his strength as an entrepreneur, and is a gift that has helped to make him successful.

"I am not blaming Lee Chin for the price he was able to negotiate," stresses Jackson, publisher of the monthly Investor's Choice financial magazine. "He clearly had the vision to see the opportunities and to understand the good value in the bank that the government could not see. He also had good people around him to advise him. He cleaned up the bank, brought in good people, trimmed the costs, and has moved it up the ladder in terms of profitability. We are happy that it is still in Jamaican hands."

NCB was brought to the brink of ruin primarily because its borrowing customers found it increasingly challenging to service their debt as lending rates, following signals from the central bank, began to climb. The situation was compounded by the ensuing depression in the real estate market, which created a vicious cycle because the bank was now unable to cover its exposure from the sale of lands and buildings that were largely used to secure the debts. NCB, as well as its largest shareholder, Mutual Life Building Society, were also over their heads with some of their own ventures -- into housing and hotel developments. These projects were also affected by the slump in the market.

But within short order, these issues that once dominated public discourse about the institution were relegated to mere footnote as Lee Chin began enunciating his big pan-Caribbean vision for the bank, and his executive team followed up with the most adroit corporate image rebuilding imaginable.

In fact, from the moment he was handed the keys, no time was wasted in ensuring that everybody understood that this was no ordinary investor.

Over the next few years, images of this transcendental entrepreneur constantly seeped into the living rooms of Jamaicans, via radios, television sets and newspapers, as Lee Chin assumed the role of the country's most visible and vocal investment advocate.

"He sent a strong signal to the business community that here comes someone who is putting his money in Jamaica," explains Chen. "He was a peripatetic spokesman for business and investment, and encouraged people to build businesses that were supportive of the environment and the country. The 'build-a-better-Jamaica' project with NCB was about keeping profits here even at a time when macroeconomic instability was always on the horizon."

According to Sheree Martin, NCB's senior assistant general manager for group marketing and communications, the project referred to by Chen raised over $300 million for education between 2002 and its expiry date in 2005. This is part of the nearly $1 billion that Lee Chin has donated to charity in the eight years since acquiring the bank. He has donated hundreds of millions more directly through AIC.

Within months of owning the bank, it became evident that the bold declaration at the signing ceremony by this investor, of what NCB under his leadership would do, was no empty promise.

"I pledge that AIC will put its weight behind NCB to make sure that it becomes the pre-eminent financial institution in the Caribbean," he said, back then.

But even this incurable optimist can be surprised by positive results.

"We knew that the prospects were great; we did not know how great," Lee Chin admits. "We knew we were buying into the emotional connection between NCB and the Jamaican people, but we could not have quantified that. We knew that if we did a good job, great things could happen. I am so proud of what has happened to NCB; it is beyond my wildest imagination of what could have happened."

The businessman recruited top-flight talents to run his bank — primarily Jamaicans from all over the world with track records of success; he paid them top dollar, and mandated them to fix the shortcomings within the business — deficiencies that he says "were allowing the competitors to pick at our chops".

The chairman wanted immediate attention to be paid to modernising the bank's derelict IT infrastructure, and its back-office operation. Also on the top priority list was lifting staff morale in order to lay the foundation to transform his institution "from a bureaucratic organisation to a selling machine... we had to change the perception of Jamaicans about the bank".

At NCB's boardroom and within the ranks of senior executives, Lee Chin combined an effusive management style with an easy embrace of new and fresh thinking and a healthy tolerance for disagreements. Cohen believes that this approach engendered meritocracy at all levels throughout the organisation and promoted an environment that became a virtual husbandry for new ideas.

"He is willing to allow people the latitude to disagree, because he believes that there is no such thing as a bad thought," notes Cohen. "There is no price for disagreeing with Lee Chin."

Martin, too, has seen where Lee Chin's collegiate style has helped to unleash a potent creative energy within the organisation that, she says, allows it to keep ahead of the competition by constantly churning out a range of innovative products and services.

"He has encouraged a spirit of innovation at NCB, and this is why we continue to be the first to the market with many strategic products and services," she claims. She cites the "Keycard Cash", a prepaid debit card; NCB Payroll Plus, a payroll- backed unsecured loan facility; and its mobile point-of-sale network as examples of the offerings with which NCB has led the industry.

While Lee Chin's corporate character as an enlightened and visionary chairman has played out largely behind closed doors at NCB, it is his public persona as an aggressive, can-do businessman with a predisposition for homilies that has endeared him to the Jamaican public.

Just take in his fascinating turn of phrase as he explains his motivation for investing here:

"The colonies used to be cash flow for the motherland, but the profits were not reinvested and the wealth was being destroyed. There was a brain drain which further compounded the wealth destruction... the solution is to build strong indigenous businesses so there is no need to repatriate profits and you can create the compounding effect of wealth and human capital; so in a sense this is reverse colonialism."

This signatory theme has been repeated in various incarnations by Lee Chin, and echoed by his surrogates in Jamaica as he, through AIC and NCB began an active programme of portfolio investment and corporate acquisitions within the local market.

By August 2002, just five months after the formal takeover of the bank, Lee Chin began putting in motion his preaching about profit reinvestment, and made it clear that though NCB may be the crown jewel in his emerging Jamaican empire, it would not be the only success.

The investor snapped up the 160,000 square-foot Mutual Life Twin Towers at the corner of Old Hope Road and Oxford Road in Kingston. In the severely depressed real estate market, he snagged the asset for an enviable $650 million.

Within one year, he signalled his intention to become a major player in equities, and a force to be reckoned with within some powerful boardrooms. He bought 197.4 million shares of Desnoes and Geddes, and 107.5 million of Cable & Wireless. The combined stake came at a price of $1 billion.

Two months after these deals, he paid Jamaica National $255 million to take back 20 million NCB shares that were held by the building society. Among the other portfolio investments:

* In January 2004, he bought Grace Kennedy's 44 per cent stake in Kingston Wharves for which he paid $610 million.

* He acquired 48 per cent of Dyoll for $561.3 million in early 2004.

* He amassed a 22.7 per cent control of RJR Group, in a two-step transaction in which he spent a combined $305 million.

Through his principal investment outfit, Portland Holdings, of which he is chairman, Lee Chin acquired the following assets:

* The Medical Associates Hospital in Kingston, in 2006.

* 85 per cent of the main assets in Neville Blythe's UGI Group — the general insurance company, which has been rebranded and now operates as Advantage General Insurance; and CVM Television station — both deals consummated at the same time in 2006.

* Trident Villas & Spa, and Blue Lagoon both in Portland; and Reggae Beach, in St Mary.

* In 2005 he joined the Risley Group as a combined 30 per cent shareholder in Columbus Communications to create the communications company, Flow.

Lee Chin demonstrated his entrepreneurism both by the deals he closed, and the assets for which he made unsuccessful bids. He failed, for example, to advance his interest in the government's 59 per cent stake in Jamaica Pegasus Hotel, held by the state-run company Urban Development Corporation (UDC). In 2003, he came close to buying 80 million shares in Life of Jamaica, again held by the Jamaican government, but the arrangement fell through.

It is instructive that even when this acquisitive businessman failed to close deals on which he set his eyes, his moves generated public conversation that generally helped to promote a positive mood within the marketplace.

John Jackson agrees that Lee Chin helped to buoy the Jamaica stock market with his investments — even though the analyst remains critical of some of the individual picks he made, in particular, Kingston Wharves.

"Ultimately you have to give kudos to Lee Chin," says Jackson. "He is an entrepreneur and when his own advisors are sleeping his brain is working overtime on the next big deal and the next opportunity."

From where she sits, Marlene Street-Forrest, the general manager of the Jamaica Stock Exchange has a unique view of an important area of the stock exchange operation that Lee Chin, as the chairman and owner of NCB, has positively impacted.

" NCB is the most well-governed company in terms of ensuring that it is in compliance with the procedures and regulations required for listed companies," says Street. "NCB is the forerunner in providing a governance document which sets out how management is governed with issues like trading of their stocks and their analysis and discussions of the company's performance. They have a highly developed governance procedure."

For the past two years, NCB has either won or shared with Pan Caribbean Financial Services the JSE award for best practice with respect to corporate disclosure. "We are glad that the bank remains in local hands and is listed on the exchange," says Street. Forty-four companies are listed on the JSE.

Lee Chin has not been immune to failure, and, like most entrepreneurs, has had his fair share of disappointments, in his case both as a portfolio investor, and as someone who, in the face of harsh economic realities, has had to drastically scale back on big developmental ambitions.

For example, he lost half-a-billion dollars when Dyoll collapsed — only months after he bought a big chunk of its shares — after Hurricane Ivan in 2004 created claims in The Cayman Islands that the insurer simply could not handle.

A greater emotional toll was exacted on the entrepreneur when he was forced to mothball a hotel project in Port Antonio in 2008, and apply the brakes on the grand transformational vision he had started to put in motion for his parish of birth.

The builders were well into the planned US$20-million reconstruction of the 15-villa Trident Hotel when Lee Chin called a halt to the project two years ago. It was meant to be the first phase of an ambitious J$20-billion joint development with the Port Authority of Jamaica. A resort was to be built on Navy Island, the Titchfield Hotel reconstructed, and Blue Lagoon restored to its former glory.

Still, Port Antonio is now benefitting from a new courthouse and civic centre, a $300-million gift from NCB that is part of the development plans for the town.

In an interview with the Sunday Observer, Lee Chin at the time cited the general economic conditions and poor infrastructure within the parish as reasons for halting the investment.

"I want to be sure the tourism business is viable," he said. "The economic climate is tough."

For those who are close to this entrepreneur, his personal characteristic that looms largest is not his business savvy or proven ability to pick corporate winners.

Nobody is better positioned to speak with eloquence and authority on this subject than his brother.

"He is the most generous person you will ever meet, sometimes to his own detriment, both in small things and big things," declares Wayne Chen. "He is an old-time philanthropist; he has a strong sense of commitment and duty to the people and communities that made him who he is."

A most spectacular display of this side of the entrepreneur came in 2004, when he donated Can$30 million to the Royal Canadian Museum. He gave millions more to the University of Toronto, and to his alma mater, McMaster University, and several other big charities in that country.

"He made his fortune in Canada; he felt an obligation to that country on two folds," Chen explains. "It was a gesture to the country where he made his fortune, and he did it on behalf of the Jamaican and Caribbean citizens who formed the last wave of immigration to Canada."

Chen added that his brother thought it was an important symbol to be able to demonstrate -- just like other ethnic minorities had done -- that the Caribbean people had come of age, had reaped success in Canada, and could give back to the country.

An example of his grand charity was AIC's $200-million donation to the Northern Caribbean University in Mandeville for a nursing wing that now bears the name of Lee Chin's mother, Gloria.

"He raised people's expectation about what constituted corporate social responsibility," notes Chen.

NCB's Sheree Martin concurs, pointing to Lee Chin's favourite charge that the bank "must not only do well, but also do good", a phrase that the chairman has formally adopted in its Latin form, "prosperitas cum caritate" - no doubt to lend canonical authority to the mantra.

"He likes to talk to young people, to share anecdotes with them that are designed to inspire them to achieve," adds Hylton. "They are philosophical messages that convey to them what the important drivers of success are."

Moses Jackson is the co-founder of the Business Leader Award programme, the founding and former editor of the Business Observer, and a member of the Business Leader Award Selection Committee. He may be reached at moseshbsjackson@yahoo.com.

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