When the British pulled out of Singapore in 1963, many companies established by the colonialists were put up for sale. One of these was Straits Trading, a tin mining and smelting company that owned many tin-rich deposits across Peninsular Malaysia. The company came under the control of the late Tan Chin Tuan, philanthropist and former chairman of Oversea-Chinese Banking Corp, who saw value in the company and acquired its shares.
More than half a century later, Straits Trading is led by Tan’s granddaughter, Chew Gek Khim, who is the executive chairman. Under her leadership, the company has diversified and expanded beyond the tin mining and smelting business, which had seen better days. It is now involved in property development, investment holding and hospitality — sectors that have been booming in the last two decades. As such, the company has grown to derive most of its earnings from property-related sectors.
The story of Straits Trading is also the story Singapore’s miraculous rise from Third World colony to First World country. Like Singapore, which was forced to fend for itself after being booted out by Malaysia in 1965, the company, too, was forced to evolve after the collapse of tin prices in the 1980s. But unlike resource-poor Singapore, the company was able to monetise and securitise many of its properties and land assets under its tin mining and smelting business, and from acquisitions made over the years.
Similarly, Straits Trading, like Singapore, is at present facing its biggest challenge. Out of the blue, the novel coronavirus pandemic struck this year, throwing all of Straits Trading’s plans into disarray, as it had with many economies and companies round the world. The impact of Covid-19 has made the steady returns and gains from property-related assets look uncertain. This is due to changes in human behaviour and activity in many parts of the world, because of safe distancing measures, air travel restrictions and even lockdowns of entire countries to stop the spread of Covid-19.
Retail activity, for one, has plunged as people were forced to stay home. This has accelerated the shift to e-commerce and home delivery, causing sales registered by bricks-and-mortar shops to drop off a cliff. The loss of retail income also meant that many tenants have fallen behind in their rent; with those in worse shape choosing to shutter their businesses for good, which ultimately affects the income of landlords.
The office segment too has been affected. The phenomenon of working from home has brought into question the future of work. If work can be completed satisfactorily at home, how much office space do we need? As such, companies that find remote-working viable may choose to downsize their existing office space.
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However, the worst-hit should probably be the hospitality sector. Hotels, resorts and serviced apartments rely largely on the spending power of international tourists. If national borders do not open to allow international flights to resume operations in a big way, the hospitality sector will not survive as there is only so much staycation and domestic tourism can do. Meantime, video conferencing in lieu of business trips could reduce the number of bookings for MICE facilities too.
Indeed, Singapore’s 55th year as a sovereign nation will be celebrated with less fanfare this Aug 9 compared to previous years due to the Covid-19 crisis. Beyond grappling with the pandemic, the country will also have to navigate its way around heightening US-China tensions as well as combat the rising trends of protectionism and deglobalisation. In the same vein, Straits Trading has its own set of challenges. So, how will the company navigate amid these troubled waters?
Facing the new normal
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Apart from its 54.8%-owned Malaysia Smelting Corp (MSC), which houses the tin mining and smelting business, Straits Trading owns an 89.5% stake in Straits Real Estate (SRE), which invests in real estate-related opportunities globally. The company also owns a 20.95% stake in ARA Asset Management, a real assets fund manager headed by John Lim. It also has a 10% stake in Suntec REIT, which has a portfolio of commercial properties as well as a 30% stake in Far East Hospitality Trust (FEHT), which owns and manages hotels.
Speaking to The Edge Singapore in a recent interview, Chew says the property-related sectors will continue to be the focus of Straits Trading going forward — especially at the securitisation level. The company will continue to develop properties and securitise them where possible. At the same time, it will continue to invest in real estate-related opportunities globally, in both private and public markets, across the full equity and debt spectrum and across asset classes.
The challenge, of course, is finding and adding value in the new normal. Chew says she is unsure if the changes in human behaviour and activity are temporary or permanent. Take, for instance, the office building. The consensus view, she observes, is that companies are likely to shrink office space in favour of working from home. “But I’m not so sure. I think it may happen for some companies or it may not happen for all,” she says.
As Chew recounts, a CEO of a company had recently complained to her about the ills of working from home. “Aiya, Khim. I’m so irritated. My people are not working. I’m going to take up more space and make everybody come back,” the CEO told her, possibly in exasperation.
Whatever the case, Chew says her team will need to find new ways to add value because the fundamentals of the property development business have not changed. “You still have to add value, but adding value does not mean cramming more people into one building,” she says.
Chew admits that hospitality is a “tricky” sector because no one knows for sure when tourists will return. Most borders remain shut, except for those on essential trips. Passenger demand in May improved “mildly” to a y-o-y decline of 91.3%, compared to the y-o-y decline of 94% in April, according to the International Air Transport Association (IATA).
“So, I think the strategy will be to focus on staycation. This makes sense in countries like Australia where we have quite a lot of hotels because even if people don’t fly, you can do some interstate travel. The exception is Melbourne, which has reinitiated lockdown, although the other states have not,” she says.
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Retail is another problematic area. Chew notes that when e-commerce first began to pick up pace, bricks and mortar retailers fought back by pursuing an experiential strategy. This meant having more F&B outlets, gyms, salons and other attractions for shopping mall visitors to see and do. And the strategy seemed to have work — until Covid-19 came along, she says.
“So, is the [experiential strategy] gone completely? Or will people go back to the malls once we find the vaccine? I don’t know,” she says, adding that shopping malls may change into collection centres for e-commerce. “We need to watch what the new behaviour is and then change our plans accordingly.”
Logistics, however, has benefited immensely at the expense of retail, which should bode well for Straits Trading. Last year, SRE had enlarged its logistics portfolio in Australia through build-to-suit developments and the acquisition of income-producing assets. It also expanded into South Korea’s logistics sector.
Chew believes that demand for warehouses will grow as the supply chain continues to evolve. And there will be opportunities to expand further. “We’re looking at logistics primarily in Adelaide where the government is putting a lot of money into infrastructure. In the case of Korea, we believe that the logistics facilities can be developed further. And so, we think that as we improve on it, there will be demand,” she says.
As for the relisting of ARA, which was delisted from the Singapore Exchange in 2017, Chew says the plan remains the same. She notes that ARA is aiming to achieve asset under management of $100 billion by 2021 before eventually relist. “The issue now is timing,” she says.
Making the most of tin
Finally, what about MSC? How does the tin mining and smelting business continue to fit into Straits Trading’s push towards property-related sectors? Could there be a sentimental reason behind not letting go of the business?
The way Chew sees it, if MSC continues to make money, why sell it? “If I weren’t in it, would I go into tin mining? Maybe not. But if I’m in it, why do I not just make the most of it?” she says. Moreover, she believes that the company has yet to realise its full potential.
Chew points out that MSC recently relocated its smelting operations to a new plant in Pulau Indah. The new plant employs a modern technique of tin smelting that is more efficient that the previous plant in Penang. While the new plant had started operations earlier this year, Chew says it was disrupted by Malaysia’s movement control order (MCO). But the new plant should be fully operational by yearend, following the lifting of MCO, she notes.
To move with the times, Straits Trading is also hoping to leverage digitalisation such as data analytics, to make its operations more efficient, says Chew. This should help to improve margins, she explains. There may also be an opportunity to securitise “some assets”, she says, adding that it is still too early to divulge details.
For the foreseeable future, the company’s biggest catalyst is the Straits City development project in Butterworth. The project, which is jointly owned by Straits Trading and MSC, will be developed by STC Property Management, a wholly owned subsidiary of Straits Trading. The first phase of the project will see the development of a four-star hotel due for completion in 1H2022.
Straits Trading may have started out as a pure tin mining company in 1887 but it has certainly come a long way. Just as Singapore has reinvented itself and prospered, so too has Straits Trading. But both will need to remain agile to adapt to the post-Covid new normal to continue prospering.
