This story appears in the September 2, 2013 issue of Forbes Asia.
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Room At The Inn: Serge Pun is Myanmar's top residential developer. His Singapore-listed Yoma Strategic Holdings is trading at 80 times its forecast earnings as investors seek a vantage on Myanmar (Credit: Adam Dean for Forbes)
The road to Star City is a rutted two-lane highway that threads past the ragtag outskirts of Yangon, crosses two rusted bridges and ends, almost an hour later, at a slick showroom on a grassy riverbank. A roadside billboard welcomes me to “A Model City of Tomorrow.” After a bumpy ride in monsoon rains the real estate showroom comes as a relief and something of a mystery. As a salesman clicks on interactive screens showing condominium designs and floor plans, I wonder who would choose to live out here in the boondocks.
Later I step outside and, as the rains pause, look upriver toward the city. And there, shimmering above the grimy streets, is the golden spire of Shwedagon, the Buddhist temple that is a symbol both of a nation’s ancient riches and popular resistance to five decades of military rule that ended in 2011.
Only then do I grasp the shiny promise of Star City and why local buyers are snapping up units aimed at middle-income families. The 400-acre site will eventually be linked by ferry to downtown and by road to a Japanese-backed port farther downriver. With a planned community of 25,000, it’s a self-contained commuter belt for a city with a population of 5 million that may double in the next 20 years, driving up land prices and pinching public services. It’s a bet on a promise of peace and prosperity.
The man behind Star City is Serge Pun, a former exile who returned to Myanmar in the 1990s to build a property-to-banking empire that came close to collapse a decade later. Reinvigorated by the political thaw, Pun is now tapping foreign capital and talent to double down on holdings like Star City that lay fallow during the dictatorship. Other Burmese tycoons are sitting on prize assets but could struggle to unlock their value compared with Pun, who is Myanmar’s top residential developer and among its richest men.
An ethnic Chinese, Pun is both an insider and a curious outlier in an opaque political economy geared to crony capitalism. He styles himself as a principled businessman who says no to corruption and isn’t afraid to make enemies. This dualism, the insider and outsider, is reflected in his penchant for gated suburban communities that circle the city. That said, his next big project, running in parallel with Star City, is a mixed-use redevelopment of 9.6 acres of prime downtown land that he’s sat on for two decades and is conservatively valued at $100 million.
His ambitions don’t end with real estate: First Myanmar Investments (FMI), his flagship, has interests in agribusiness, auto distribution, tourism, civil aviation and retail. Barely a month goes by without a new venture or spinoff. Pun’s impeccable image and overseas exposure have made him a go-to guy for Asian and Western firms seeking partners in Myanmar, a bridge between worlds. He has permanent residency both in Hong Kong, where he founded his first venture, and in Singapore, where he has a listed company, Yoma Strategic Holdings. “International companies consider us as foreign. Burma’s government consider us as a Burmese company,” he tells me.
Pun isn’t in Yangon when I visit Star City, so we meet instead in a hotel lobby in Beijing. With a shock of silver hair over an unlined forehead and rimless glasses the 60-year-old has a modest, avuncular air. During breaks he pops outside to smoke Al Capone-branded cigarillos. His reputation, though, is that of a shrewd and dogged bargainer. “He’s a great closer,” says a party to a recent transaction. When he pays for our drinks, he chides the Chinese waitress at length over an unwarranted charge on our $34 bill and vows to talk to the hotel manager. I’m left unsure if he’s putting on a show of frugality for me or is truly ticked off.
To his family and friends he’s Serge, an affable workaholic. “There’s no difference between personal life and work life; it’s always the same thing,” says Melvyn Pun, his eldest son and chief executive of FMI. Ken Mandel, an American who worked for Pun in the 1990s, says: “He loves what he does. It’s obvious.” Inside the company he’s known as S.P., perhaps to avoid confusion with the other Puns. His Burmese name is Theim Wai. But he’s proudest of being called Burma’s Mr. Clean, the man who dared to say no to the grasping generals. “I’ve never paid a cent. But I’ve never been short of opportunities,” Pun avers.
This reputation set him apart from tainted tycoons like Tay Za, one of dozens of individuals subject to U.S. financial sanctions. Most analysts agree that Pun is scrupulous in his governance and didn’t consort with the hated junta that stepped down in 2011. But “you don’t get where Serge is today without having some friends in high places,” says a foreign consultant, who discussed Pun on the condition of anonymity.
Analysts point to Pun’s extensive land holdings and a banking license acquired in the 1990s, when Myanmar’s corruption was rife. Yoma Bank would later have a near collapse during a run on private lenders. In 1997 FMI acquired a minority stake in a now-defunct joint venture between the regime and Suzuki Motors to assemble cars and motorbikes for a near-captive market.
Pun says that he works with pragmatists in government and that land and other concessions were awarded on the basis of performance, not favoritism. “We do things properly. We don’t cut corners,” he says. By refusing to compromise, Pun says he lost out on crony deals. “We paid a high price during the dark years, at the brink of elimination. We stood firmly to our principles,” he insists.
Pun is upbeat on Myanmar’s economic prospects after decades of stagnation and misrule. In the last 18 months he’s hired dozens of expat managers and returning Burmese, including three of his four foreign-born sons. This investment in foreign talent, and their willingness to relocate, is another aspect that sets him apart from local entrepreneurs and gives him credibility with multinationals.
However, it also jacks up his costs. Yoma Strategic reported an 81% drop in profits in the three months to June 30 on a doubling in administrative costs and a modest 12% year-on-year rise in revenues. A small net profit for the full year is forecast, but investors seem undeterred: Yoma’s stock is trading at over 80 times future earnings.
Myanmar doesn’t have a stock market, so shares in FMI, which Pun founded in 1991 and owns 70% of, are traded over-the-counter in Yangon. Both FMI and Yoma, which reverse-listed in Singapore in 2006, have issued new stock as investors dive into Asia’s newest frontier. These include George Soros, whose fund invested in Yoma and later teamed up with Pun and Jamaica’s Digicel to bid unsuccessfully for a wireless telecom license in Myanmar.
Yoma’s main revenue comes from property sales in Yangon, where prices have soared since 2010. “The demand is there. And the supply continues to fall short,” says Tan Ai Teng, vice president of DBS Vickers Research in Singapore. That makes Yoma, as Singapore’s only Burmese stock, a proxy play on the market.
Yangon has only a handful of modern office buildings. Pun estimates the total supply of office space at roughly 430,000 square feet, which explains why rents are higher than in Hong Kong as multinationals scramble for berths. “They may bitch about it, but they always end up paying because they need the space,” chuckles Pun, who has a net worth of $500 million on our list.
His road to riches had a bumpy start. The son of a Chinese-born banker, Pun enjoyed a privileged childhood until a coup in 1962 put Burma on a nativist path to penury. General Ne Win ordered schools to stop teaching in English and began to nationalize private property. “That’s when most people decided to leave,” says Pun. In 1965 his father, an ardent leftist who worked for China’s Bank of Communications, moved the family to Beijing, where Pun and his brother enrolled in a school for overseas Chinese who didn’t speak the language. They wouldn’t see their homeland again for nearly a quarter-century.
Nine months later the Cultural Revolution began. Pun, set free from the strictures of school, became a teenage Red Guard. “We ran around and did all the things that young revolutionary youngsters did. Riding around the country, writing big-character posters,” he says. Four years later he was packed off to a border village to live among the peasants under army supervision.
By 1973 had China loosened its border controls, and Pun was allowed to leave for British-ruled Hong Kong, following his family. He crossed the border with HK$5 in his pocket. “I came from the most remote, poor community, where you walked miles to get somewhere and lived on very basic things. Suddenly you enter Hong Kong and get on a train. It’s a different world.”
Pun labored briefly on berthed ships in Hong Kong harbor before finding a job as a door-to-door salesman for air sanitizers. One day he walked into the office of a real estate broker, Elmer Busch, and attempted, in his broken English, to sell him a sanitizer. Busch noted his drive and told him to come back on Saturday. When he did, the German offered him a job. Pun said he accepted but only if Busch made a purchase. “That’s the last air sanitizer that you will ever sell. From now on, you work for me,” Busch told him.
For the next ten years Pun learned the business inside out from his mentor, who took him on marketing trips to Europe and Canada. “I knew nothing of the world,” he says. The roles have now reversed: Pun recently hired Busch, who was living in Toronto, to manage Yoma Strategic’s property division.
Pun went solo in 1993 and built a successful real estate business in Southeast Asia and China. He married a Hong Kong woman whom he met at a Chinese investment forum. In 1989 he took his wife to see Burma, his first trip back in 24 years. The regime was starting to relax socialist controls on a stricken economy.
Pun spied opportunity. A Burmese army friend introduced him to General David Abel, who was in charge of trade and finance. “He virtually convinced me that there was no alternative but for me to go back and help the country,” Pun says. He tried to take over a state-owned hotel, but when a new minister ordered a fresh tender, Pun lost out to a rival whom he suspected of bribery. “I was so mad. I couldn’t drive past that hotel for a few years,” he says.
His next venture was more fruitful. In 1994 he broke ground on FMI City, a 500-acre gated communityon Yangon’s western flank, near an industrial zone. Pun developed the site, sold land rights and took a management fee. The first plots went on sale at a time of rising expectations as Myanmar tacked toward a market economy and multinationals began to step up their investing.
Pun shared this optimism. He convinced his mother to move back from Hawaii (his father had died) and found jobs for his siblings. It was a way to bring a clan together after decades apart. “We thought this was it. The last stop,” he says.
Pun’s next residential project was an ambitious 600-acre estate with a country club. Its centerpiece was a lush, 18-hole golf course designed by Gary Player that would become a fixture of Myanmar’s golfing scene, which is synonymous with its business scene. Among the most avid golfers were the generals, which gave rise to accusations that Pun was currying favor with the regime, which he dismisses. “No generals can play free on my course. They have to pay,” he tells me.
One of those generals Pun did cultivate was Khin Nyunt, the military intelligence chief who served briefly as prime minister. “You could talk logic and reason with him. He was open-minded,” he says. When Pun Hlaing Golf Resort opened in 2000, Khin Nyunt wrote in the guest book that Pun deserved thanks for investing in such a high-risk venture. “For you to have taken this risk for the country, I thank you,” he wrote, according to Pun.
Four years later the junta arrested Khin Nyunt and purged his faction. By then Pun’s empire was in trouble. In February 2003, when rumors of unreported bad loans sparked a run on private banks, Pun tried to save Yoma from collapse. He soon found himself at loggerheads with the Army general in charge of the crisis, who vetoed additional central bank liquidity and ordered bankers to call in loans immediately. Factory owners who had taken out loans to buy equipment and property owners were told to repay–or face the regime’s wrath. Meanwhile, bank managers had to face the wrath of customers who couldn’t withdraw cash.
Ten years on, Pun still seethes over the fallout. “The guy they assigned to be the head of the crisis committee single-handedly and overnight killed the whole country’s economy in one stroke,” he says. “That was the beginning of cronyism because there was no real economy left.”
Two of the largest private banks were shut down. Pun managed to keep his license but was barred from taking deposits or making loans, so he switched to domestic remittances. He continued to scoff behind the back of the general in charge, making a powerful enemy. “He never forgave me for that,” he says.
However, Yoma wasn’t blameless. Its loan book was geared to Pun’s other businesses, defying a 15% limit on related-party lending, and some depositors had to wait years to get all their money back. Pun admits that Yoma broke the rules on group loans but says other banks did the same and insists that everyone was repaid.
Yoma had to wait until last September to get back its full banking license. Pun thought he’d got a green light in 2011 when President Thein Sein approved its restitution and finance officials called to congratulate him. A few days later they called back. The approval was stuck in the office of the vice president, who was the same general who had mishandled the banking run. Might Pun want to call on him and try to smooth things over? “I’m not talking to him,” he shot back.
It took another year and a change of vice president, but Yoma finally got its license back. Pun stuck to his guns and won, just as he insists that he never kowtowed to the men in uniform who plundered the nation during the dictatorship. And if he seems to be gloating, that’s because he is. This is his moment of vindication. “Many people expected him to fail,” says Melvyn Pun. Big mistake.
Ref;Forbe