Pakistan’s mystery billionaire

“He’s the Howard Hughes of Pakistan. Nobody ever sees him. You’re the first ones (among journalists) who are going to witness him in the flesh,” said the person who ushered us into a conference room on the second floor of the recently built 26-storey Mega Corporate Tower near Teen Talwar, Clifton.

Habibullah Khan is sitting at the head of a large table. With a few loose pages and a smartphone in front of him, he looks very much like a businessman. He stands up to shake our hands. He’s wearing a well-worn pair of glasses and has a Mediterranean tan.

In short, nothing in his appearance gives away the fact that he could soon be practically the single largest player in the cement industry with plants in each of the four provinces, that he owns a container terminal, runs the largest shipping and logistics businesses in the country, has just sold a real estate property in the biggest deal of its kind to Habib Bank, and will soon be setting up a six-star international hotel on the most prime piece of land in Karachi that he just acquired. He’s also the largest player in dairy after Nestle and Engro Foods.

Most importantly, he’s actively working to acquire a financial institution besides being a huge player in the energy sector, having recently acquired a major stake in Hub Power (Hubco).

“I’m the largest private equity player in this market,” he says, adding that three of his companies are among top 30 taxpayers.

Very few of his assets are listed, so it’s difficult to get to an accurate figure regarding his net worth. Apart from a small group of old friends who he socialises with, few Pakistanis are familiar with his name, let alone his face. Yet his numerous businesses play a central economic role in the daily course of events in the life of an average citizen.

Like Hughes, an eccentric and one of the richest American businessmen of his time, Khan guards his privacy grudgingly. Google his name and you won’t find even a single interview or photograph on the internet. He avoids the media like a plague. In fact, when he acquires an asset, he ensures that the purchase agreement includes a no-publicity clause.

Unlike other businessmen in Pakistan, he almost never sits on boards of the companies he owns (their number runs in dozens) and he prefers to let management, independent members and his son take the lead on boards.

Steering clear of banks

Another reason Khan has managed to maintain a low public profile is that none of his assets are borrowed. Instead of borrowing from banks, he uses his own funds to buy companies. The latest example being Hotel Metropole, a near-abandoned hotel complex spread over 4 acres right in the middle of the financial district of Karachi.

“It’s not a simple transaction in the sense that there were many legacy issues with the property and financing it would have been a long drawn-out affair, which would have collapsed the deal,” he says. After all, being liquid and debt-free at the same time is the dream of a private equity guy on a buying spree.

Past owners of Hotel Metropole are Zoroastrian, more commonly known as Parsis, a fast ageing and dwindling religious minority that once dominated the commercial landscape of Karachi. Apparently, they had been trying to sell that property for a decade. There were many interested parties, but few had the kind of liquidity and appetite to consummate the transaction fast. Except for Khan.

“By the grace of God, within two months we closed the deal,” he says.

And what he’s going to do with this prime land surrounded by national landmarks, elite clubs and business centres in the middle of the world’s eighth most populous city? He says he’ll build Pakistan’s first six-star hotel. “We’re going to make a district with four different components. One will be a globally recognized six-star hotel. Next to that we’ll have branded apartments sharing the hotel’s facilities. Then we’ll have an office tower and a utility (centre). We will make a bypass as well, so we create the condition for traffic to move freely around the project and in the area. We want to build a city within the city and we have been working extensively to achieve this,” he says.

The company is considering awarding the design contract to renowned British-Iraqi architecture firm Zaha Hadid Architects or Louis Vidal of Spain both of whom have already given their proposal for the complex.  A third UK architecture firm is in the running as well.

Khan is planning to have a debt-to-equity ratio of 30:70 for the project. He’s going to have a hybrid Sukuk, which is an Islamic bond that promises ownership in a real, tangible asset, such as real estate. “We have already bought the land, which can be a part of the equity. We’ll try to bring in foreign investment. We’ll try to bring sovereign funds to join us in the development,” he says.

That Khan was able to come up with funds to acquire Hotel Metropole in such a short span of time was partly because he had just sold Mega Corporate Tower to HBL. He’s also using some of the proceeds from the Mega Corporate Tower sale to partially fund the next real estate project in Lahore. He built Mega Corporate Tower using his own funds. But now he’s tapping into banking channels to expand further.

For instance, his latest acquisition of stakes in Hubco and Dewan Cement are partly financed by banks.

Banks lend him happily: the group has strong balance sheets other than that of Mega Conglomerate to borrow against. In fact, Mega Conglomerate is hardly a conglomerate in the sense that it controls only a fraction of the myriad of national businesses that Khan owns in as many as seven industries. As per his own reckoning, Mega Conglomerate represents only a small part of his business empire.

“So are you a billionaire in dollar terms?”, we ask.
With a sparkle in his eyes, he flings the question back at us: “What do you think?”

His father’s son

Like any big conference room in a corporate office, this one too has many large-size windows. But all curtains are drawn. We’re told Khan likes to sit in a room with drawn curtains – another eccentricity that he shares with American aviator Hughes who would stay in a room for months on end and communicate with the outside world only through his staff.

He has no qualms in admitting that he was born with a silver spoon in his mouth. But his father was a professional, not businessman. Asadullah Khan was Pakistan’s first gas engineer who helped create what today is Sui Gas. “My father was instrumental in setting up the oil and gas industry in Pakistan. During Ayub Khan’s days, he used to represent Pakistan in all the global oil and gas conferences,” he says.

From KGS to London, and back

Khan studied at Karachi Grammar School but moved to boarding school in England when his father left the country in 1972. After completing school, he went to Imperial College in London and was part of the first batch of computer engineers that graduated in 1979.

His next stop was the University of California in San Diego where he worked on the Columbia satellite as a computer engineer. Then he went to Berkeley to study management science and industrial engineering.

His one-year stint at an American engineering giant Bechtel ended when his boss told him he was ‘too ambitious’. “They said move to Europe, you’ll do much better. They wanted to put me on a platform in Norway. I said forget it. Then I came back to Pakistan,” he says.

Khan started off in software and then moved into first textile and then shipping in 1985. “By 2000, we were the largest [in shipping]. We bought Qasim International Container Terminal (QICT), where the DP World is our partner today. We used to control 42 percent of anything that came in and out of this country in containers. Over time, I felt that we needed to diversify so that is when we entered into other businesses,” he says.

He used to have 20 container carriers out of which five of the world’s largest global carriers were his partners. Then he expanded into downstream, which means he built his own trucking company and inland container depots.

Buying distressed assets

In his latest letter to Berkshire Hathaway shareholders, Warren Buffett wrote that major declines offer extraordinary opportunities to those who are not handicapped by debt.

Khan says he continues to buy distressed assets using his own money. “I never liked debt. I never borrowed from banks… We bought  (QICT at) Port Qasim, distressed; Haleeb, distressed; cement, distressed”. He is the only one who’s actually done large-scale M&As (mergers and acquisitions) with his own money.

His record of buying distressed assets from banks is so consistent that banks actually go to him when they are stuck with a distressed asset.  On his last deal, one of the banks sent him a “Superman” cake.

Even Mega Corporate Tower on which he just booked a capital gain was bought from a consortium of banks who had extended a big loan to LG that went into default. Now the market is down again, he says, so he’s looking to continue buying.

If he buys Dewan Cement, he will be salvaging the largest financial default in the 70-year history of this country. Dewan Cement notified its shareholders on January 31 that Mega Conglomerate showed interest in acquiring 87.5 percent shares in the company. The share price was Rs 26.38 on that day. It closed at Rs 27.29 on March 9.

Dewan Cement posted a net profit of Rs1.3 billion in 2016-17, down 13 percent from a year ago. Its total assets amounted to Rs30.2 billion at the end of the last fiscal year.

Khan’s approach to reviving a debt-ridden, sick enterprise involves cutting down expenses ruthlessly even if it means laying off people. “If I buy a company that has a lot of debt, the first objective for my CEO is very simple: my debt has to be zero. I can’t sleep at night (until that happens),” he says.

If the deal goes through, Khan’s group will be the first player to have a cement-making plant in each province. This will help the group survive downturns in domestic demand by allowing it to export surplus production, he says.

Besides showing interest in acquiring Dewan Cement, Khan has recently acquired a significant stake in Hubco from Dawood Hercules and become its chairman.

The Dewan Cement acquisition was already anticipated because of market talks about another cement company, also owned by Khan, eyeing a stake in the former. However, his purchase of a stake in Hubco, which currently generates 1,200 megawatts, came as a surprise to many, who were left scratching their heads as to what he was up to.

“He’s on an acquisition binge,” said one analyst, responding to a question about why Khan would invest in a power company. “He has a lot of liquidity,” said another, referring to Khan’s back-to-back transactions worth almost Rs 31 billion, which not only moved the market but also brought him in the limelight for the first time.

Electricity at slightly above one-third the present price

Market analysts may still be guessing the rationale behind his interest in Hubco, but Khan is sure about it. He has bought a stake in the country’s largest independent power producer (IPP) with a plan that Hubco becomes a leader in electricity generation.

“We want to work with the management and the board to make Hubco local and Hubco International,” says Khan. “We’ll try to go into Africa. We will try to go into other places in the world.”

But how will he, given that he doesn’t own an outright majority in the company? As of June 30, 2017, Hubco had five directors from Dawood Hercules and one each from NIT and Fauji Group.

“It’s simple,” Khan says, his voice filled with confidence. The board is very competent with institutional investors such as Fauji Foundation and NIT representatives on it and he plans to bring his plans to the board and with their approval have the board guide the management to embark on a growth strategy. “We’ll buy more assets and we’ll collectively put more equity into it [Hubco] if need be, to me it is clear we are all on the same page,” he says of the IPPs governing body. “We want to generate 20 to 25 percent of the country’s power. That’s the plan,” he says.

As we press him to share with Profit his post-acquisition plans for Hubco, Khan says he’d like to bring the electricity cost down and create the right energy mix by adding components of renewable energy to its portfolio.

“Today, our average cost is 12.96 cents per kilowatt. Bangladesh is at nine cents, India at 10. We have to come down to eight cents,” Khan says. The country cannot become competitive in local manufacturing or the export market unless it brings the cost down and for that, we need to add renewables to our energy mix, he adds.

After Hubco’s acquisition, Khan plans to install solar panels and smart meters at the household level. He wants to create a deregulated economy whereby customers will pay him for power consumption and solar panels and eventually become owners of the equipment.

Installing solar panels, which don’t come cheap, in one of the world’s largest cities will need a big investment. Khan seems to be aware of that as he plans to issue a bond especially designed for the general public from Hubco’s platform.

He also plans to set up a desalination plant and use the company to power that plant and provide water to Karachi; collect waste from the port city; and make regional hubs. “I’ll set up various 30-megawatt plants and give power to households in those areas and that, too, at five cents (a unit). This is what my plan is,” he says, adding that it should all materialise within two years.

The Haleeb turnaround

Khan’s move to buy Dewan Cement and Hubco is in line with his core strategy: buying a distressed asset at a time when the market is down and turning it into a profitable entity.

To understand his strategy, one has to look back at the turnaround of Haleeb Foods Limited (HFL), which he owns.

A one-time dairy giant, which had more than half of the packaged milk share till 2006-07, was bleeding money hand over fist when Mega Conglomerate bought it from Chaudhry Dairies Ltd (CDL).

HFL lost focus on white milk conceding market to Engro Foods’ Olper’s, hitting its worst crisis in fiscal year 2008, small wonder then that its share was down to 2 percent last year as already reported by Profit in a recent article.

While buying HFL, Khan did a put or call option with the former owners. He invested a certain amount in the company and allowed CDL’s former management to run it for 18 months and turn it around by meeting the Key Performance Indicators (KPIs) he had set. The tradeoff for HFL was that if they failed to meet those KPIs, Khan would exercise his call and take over the management — and that’s exactly what he did.

“The day I took over the company we were losing Rs 100 million per month,” Khan says of HFL, which is in the dairy business for 35 years. In 2011-12, HFL reported a loss, but it was back in profit the next year.

The new management revamped the company, revised the strategy and turned it around. “Why are you selling yogurt when you’re not making money,” Khan says, recalling his instructions to the new management. “First break even then grow.”

When Khan took over management control, HFL had Rs 4.5 billion in debt, which they removed from their balance sheet. He didn’t spend any money on advertising. Known for his tight control over costs, Khan instructed the new management to lay off about 300 employees. “It was the only way to survive,” he says in a matter of fact tone.

Though HFL still has a long way to go before it recaptures the share it has lost to competition in white milk, Khan says they are now number one in the tea whitener category as Engro’s Tarang, which had more than 50 percent share of the market till last year, was hit hard by recent government policies. Profit already covered this in detail in a previous report.

Khan bought HFL right after it hit its worst-ever crisis and turned it around after replacing the old management with a new one and that remains his core strategy. “I never buy at the market’s peak,” he says.

He bought Hubco when the market was down and the government changed its policy, instructing IPPs to move away from furnace oil-based power plants and adopt coal and LNG. Same goes for Dewan Cement, which is a big defaulter.

Love thy banker

Khan may like to stay away from debt and self-finance even massive infrastructure projects. But he loves the idea of owning a bank. After an attempt to buy Meezan Bank in 2013, he’s planning another move to purchase a commercial banking institution.

This time around, however, he’s looking at both Islamic and conventional options. “It doesn’t matter, as long as we can enter the financial services sector, Insha Allah.”

What matters instead is the size of the bank he wants to acquire. He says he’s looking at any bank that has 600-plus branches.

His bank will create debt instruments and derivatives, things that are not being done too much right now, he adds. He also plans to establish operations in China. “The only difference between my bank and others will be that my model is going to be on systems,” he says while waving his cell phone. “We’ll try to create a great smart thing for people to do whatever they want… We will invest a lot of money on IT and digitalise banking.”

Looking eastward for inspiration

Advancing years often make successful people wonder about their legacy. But Khan is thinking beyond funding a hospital, school or mosque, the usual path for seeking solace among ageing local seths.

He looks at Ratan Tata and Dhirubhai Ambani of India for inspiration. “I want to be a Tata, so my legacy continues for generations to come,” he says.

Secondly, he plans to do what Ambani did in Reliance. “I’ll create with my goodwill and whatever hard work I’ve done a Mega bond. I’ll ask people to invest Rs10 in that bond so that in five years, that Rs10 is worth Rs1 million… so (people) can educate their children, get them married, buy a house.”

He’s acutely aware of the fact that very few Pakistani business families have survived the test of time since 1947. People grow rich, they die, and with their death, their names die, too. He’s lived most part of his life in obscurity. But he wants to bow out in a way that keeps his name alive.

“I want to give back to my nation, by them investing in me I want to create trust, security and long-term stability in people’s lives.”

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