Burma's Tycoon!

Burma's Showy Crony

Simon Montlake, 09.28.11, 06:00 PM EDT 
Forbes Asia Magazine dated October 10, 2011

Tay Za is the outside face of capitalism in a strange land. But who and what does he represent?

It was a clear morning last February when Tay Za boarded his private helicopter to tour a frozen lake in the far north of Burma, where he owns a luxury mountain lodge. The songs from the previous night's outdoor rock concert, a free event he had sponsored, were still ringing in his ears. As the chopper climbed above 15,000 feet he snapped photos of the lake's scalloped surface. Minutes later the pilot lost altitude and crashed-landed on a mountainside.

Tay Za and the crew scrambled free of the wreckage and made a distress call using a Chinese-made phone. Armed with a handful of candy bars and two bottles of water, they began to descend through waist-deep snowdrifts. That night, as the wind howled, five men and one woman huddled together in the lee of a rock at 12,000 feet, calling out to one another every five minutes to stay awake. "I didn't expect to make it," says Tay Za, 47.

It was another three days before they were plucked alive from the mountainside. By then the plight of Tay Za, one of Burma's richest tycoons, had become international news, and Burmese army and air force units had been deployed in the search, along with a chartered civilian helicopter from Thailand. All six people survived the ordeal with only minor injuries, though a pilot later lost both his feet to frostbite.

Having pulled off one great escape, can Tay Za manage another? His political connections helped him to prosper under military rule in Burma, also known as Myanmar, but also put him on the radar of Western governments that slapped sanctions on companies in his Htoo Group. The U.S. Treasury calls him "an arms dealer and financial henchman of Burma's repressive junta." While his net worth is disputed, his high-roller lifestyle--Italian sports cars, private jets, fine wines--made him an easy target for opponents of a largely faceless dictatorship.

Now that regime has gone, replaced in March by a semicivilian government that has begun to crack open Burma's economy. As a result the ground has shifted under the feet of Tay Za and other tycoons favored by General Than Shwe, the former dictator, to the delight of rival entrepreneurs jostling for openings. "The old cronies are getting passed over, and they're not happy about it," says a foreign economist.

Like Icarus, the Greek symbol of hubris, Tay Za may have flown too close to the sun. Encouraged by his junta patrons, he invested in lossmaking ventures such as aviation, hotels and agriculture, and offset his income from concessions for timber and gems and lucrative import licenses. Now he must manage a bloated empire that is vulnerable to political reversals, while navigating Burma's economic transition and the emergence of new competitors, potentially backed by foreign capital.

Tay Za says he's ready for the challenge. "We love competition ... we want a fair fight only," he tells FORBES ASIA in a rare interview at a Marina Bay Sands hotel suite in Singapore. Dressed in black jeans, a light sweater and loafers, he apologizes for canceling a previous meeting in Yangon (formerly Rangoon), his hometown. During lunch and a two-hour interview he is keen to set the record straight, while remaining coy about his financial status.

In April he told an Italian newspaper that Htoo Group had annual revenues of $500 million, making it one of Burma's largest conglomerates. Tay Za says that he's the largest shareholder in the parent company. But how much profit it generates and how much accrues to its chairman is unclear. Most companies in Burma decline to release financial data and aren't required by law to disclose their shareholdings.

Tay Za is scathing of anti-Burma sanctions in general and of U.S. sanctions that exempted Chevron, which together with Total operates Burma's largest producing gas field. Western governments have distorted the facts, he insists. He claims that he's sold only helicopters to the military--"no guns, no ammunition"--and isn't a prodigal relation of Than Shwe, as rumored. "I'm not a son-in-law of General Than Shwe. I'm not an arms dealer."

So who is Tay Za?He was born in 1964 to an army officer, a protégé of General Aung San, Burma's independence hero whose wartime alias was "Teza," a Sanskrit word that means radiant or bright (Tay Za is an alternative spelling). In 1947 a political rival assassinated Aung San on the eve of independence from Great Britain, but the two families remained close. His daughter Aung San Suu Kyi would later eclipse her father's global fame.

Following in the footsteps of his father, Tay Za enrolled at Burma's army cadet school. But in his third year he dropped out to marry his girlfriend against the wishes of both families (they separated in 2000). Back in Yangon he dabbled in business before being swept up in the events of 1988, when popular rage erupted against military rule and Suu Kyi emerged as an opposition leader. "This is our generation," says Tay Za, who joined street marches. He says Suu Kyi later stayed at his family compound outside Yangon, and was driven around in his car, before she was arrested in 1989.

The following year Tay Za founded Htoo Trading, which uses the name of his wife's family, respected merchants whose businesses had atrophied under socialism. He began by leasing a rice mill from his mother-in-law. Then he moved into timber at a time when large concessions near the border with Thailand were being auctioned off. Instead of competing with Thai bidders for easily accessible plots, Tay Za applied to log in remote areas far from the border. He extracted logs at $10 each that were later sold for $500 or more. "I was the biggest extractor in Myanmar," he says.

Yet even this apparent smart bet was greased by political connections. His father, a retired lieutenant colonel, was working for the Ministry of Industry and urged him to bid for the concessions. "My father told me ... the government floor price is too cheap. Whatever you have, you invest," he recalls. Timber remains a valuable division of Htoo Group, netting $75 million in profit in 2007, according to a leaked U.S. cable. Tay Za says he's no longer the top exporter of wood and is concerned for Burma's shrinking forests. "I try to stop because of the environment," he says.

Windfall profits from timber allowed Tay Za to invest in real estate, including his first hotel. He also began investing in Singapore and considered moving there before the 1997–98 Asian financial crisis but decided that he preferred to put capital into his own country. "If I invest in Singapore, only Singaporeans will benefit," he says.

Over the next decade Htoo Group morphed into a conglomerate with un limited appetite for new ventures. In 2004 it launched Air Bagan, the first private airline in Burma. It also rolled out branded luxury hotels and began leasing heavy machinery. That a timber trader had such deep pockets for capital-intensive projects raised eyebrows in Burma. Rumors spread that he was a bagman for the junta and had a direct line to Than Shwe and his spendthrift family.

Not so, says Tay Za, who denies that he's a nominee. He claims that his only one-on-one meeting with Than Shwe came after the helicopter crash when he thanked him for the rescue. He says his honesty and bluntness, as well as his father's rank, went down well with the junta. "At meetings, whatever I like to talk [about], I talk straightforwardly. Some generals like this very much. Not tricky, no hanky-panky," he says.

Other sources tell of a fortuitous visit by Than Shwe to Tay Za's beach resort that greatly impressed the general. Tay Za also forged an early alliance with Thura Shwe Mann, who rose to become the third-ranking leader in the regime. He first met Tay Za when he was a lowly colonel. Tay Za promptly hired the colonel's son Aung Thet Mann, a director of Htoo Group (both father and son are subject to U.S. sanctions). This was par for the course in Burma. "At the time, you know, all the colonels' sons liked to work at companies," he says.

At first he was infuriated by trade sanctions on his companies. But he argues that Western efforts to starve Burma's rulers of foreign investment have only strengthened his hand and made it harder for competitors to enter the market. "Under these kinds of sanctions, we are much richer," he says.

That argument rings true in a closed economy where generals dole out favors to cronies. But the rules of the game are in flux. Western sanctions crimp Tay Za's access to foreign capital and make him toxic to companies looking for joint-venture partners in Burma. "He needs to rebuild his reputation. He's not starting from zero. It's negative," says a consultant to multinational firms.

Take Htoo's chain of 17 hotels, which enjoys prime spots at Burma's main tourist destinations. Tay Za wants to hire an international management company to operate and rebrand them but hasn't found the right partner, for which he blames sanctions. He says he turned down an offer from a Thai hotel group because he wants a global brand. "I'm not interested in small chains," he says.

In Yangon, a long-neglected city that is slowly shedding its past, Tay Za's mansion is a local landmark. It lies a few blocks from the U.S. embassy and the lakeside villa where Suu Kyi has been detained repeatedly (she was released last November). Tay Za's collection of luxury cars (Ferrari, Rolls-Royce) is visible from the street, and passing taxi drivers point out his palatial home. Sean Turnell, an expert on Burma's economy at Australia's Macquarie University, calls him "an almost pantomime villain, clearly with a keen eye for attention."

Is Tay Za a crony? He frowns. "That's why Myanmar people aren't rich. Whoever comes up, they have so much jealousy. They attack in so many ways and create rumors," he complains.

The rumor mill has been working overtime lately. Burmese entrepreneurs say that Tay Za has run perilously short of cash, particularly since palm-oil imports were liberalized in May, and has tried to sell hotels to raise money. "He's not in a position of strength," says a businessman familiar with the operations.

Tay Za is also said to have received a recent bill for back taxes running into tens of millions of dollars. None of his companies appeared on a recent list of the top ten corporate taxpayers (Kanbawza Bank was first). Tay Za denies any tax evasion. "We pay our taxes," he says. Asked about recent tax bills, he says that he authorized a $2 million payment in early September.

Of Htoo Group's divisions, only timber, real estate and trading turn a profit. Tay Za says he prefers to invest in industries like tourism that create more jobs and diversify Burma's commodity-based economy. He has a reputation as a generous boss who instills loyalty in 40,000 full-time staffers. Hundreds of employees have gone overseas to study, including Burma's first female pilot, and perks quickly accrue to hardworking managers. "Whatever he makes, he shares. He's a fair person," says a Burmese investor with competing interests.

A football enthusiast and club owner, Tay Za often plays in staff matches at his club's training ground. He's also a patron of Burmese music. After lunch with FORBES ASIA he pops on a Burmese music CD, pulls out his guitar and calls over his executives. "I want you to hear this," he says, as he picks out a melody, face scrunched in concentration.

A trawl through leaked U.S. diplomatic cables reveals that Tay Za has defied previous doomsday calls. In March 2009 the U.S. embassy reported that "several of our business contacts believe Tay Za is bankrupt." The following year business circles were said to be "rife with rumors about Tay Za's alleged downfall" and his replacement by "upand-coming cronies."

Even before his helicopter went down, reports of his death seem to have been greatly exaggerated. He may yet have the last laugh.

Tay Za’s Major Holdings

1. AIR BAGAN
Burma’s first private airline. Fleet of 12 aircraft. $25 million to $30 million estimated resale.

2. ASIA GREEN DEVELOPMENT BANK
Opened August 2010.

3. HOTELS
Aureum Palace and Myanmar Treasure branded properties. 17 hotels, over 1,100 rooms: $120 million to $150 million.

4. MINING
Nickel, jade, limestone, gold.

5. CONSTRUCTION AND REAL ESTATE
$30 million to $40 million in Yangon residential projects.

6. EXPORTS
Timber, pulses, rice.

Ref:www.forbes.com