Why the Motherland rather than the Ho family’s extended matriarchy could have the final word in the STDM/SJM succession
What more can be said about the bizarre succession battle over control of STDM, the parent company to the Macau casino operator SJM Holdings, founded by Dr Stanley Ho? Well, perhaps something about the plight of the institutional and private investors who pumped the equivalent of US$494 million into SJM in a partial flotation on the Hong Kong market in June 2008. It amounted to approximately 25% of SJM’s equity. If the Ho family are willing to treat each other as badly as reported in the Hong Kong media in their jockeying for control of SJM’s parent STDM, it doesn’t say very much for the prospects of those minority shareholders in SJM.
SJM is the publicly traded holding company whose operating subsidiaries run the largest casino operation in Macau. The SJM gaming operation consists of 20 SJM-licensed casinos (four of them ‘core’ properties owned and managed directly by SJM) and four slot machine lounges aimed mainly at local players. Sociedade de Turismo e Diversões de Macau (STDM) holds a 55.7% stake in SJM (through a 99.99% owned subsidiary, STDM Investments) and therefore controls the casino operating company SJM (Sociedade de Jogos de Macau). STDM is, in turn, effectively controlled by its largest shareholder, Lanceford. More on that in a moment.
It’s worth pointing out STDM has a rich tradition of in-fighting among major shareholders. And we’re not just talking about the litigation against Dr Ho stretching from 2002 to 2008 by his sister Winnie Ho. Most of that related to the spinning off of STDM assets in the run up to the partial flotation of SJM Holdings on the Hong Kong Stock Exchange.
And while everyone is nowadays wonderfully exercised by the idea of Dr Ho as the great man of Macau gaming, back in 1962 he was perceived essentially as the front man for other investors who were either wealthier than him, better connected with Beijing, or both. Eventually, those other investors either fell out with Dr Ho and sold out, or died off, leaving him top dog by virtue of being the last man standing.
The investor with impeccable credentials among the leadership in Beijing—and more ready cash back in 1962—was Henry Fok. Unlike Dr Ho, Mr Fok was actually born on the mainland. Mr Fok proved his worth as a Chinese patriot during the Korean War from 1950-53, when he reportedly helped China circumvent Western economic sanctions. Another original STDM partner was Teddy Yip, a flamboyant Dutchman of Chinese extraction who became a successful Hong Kong businessman and who for a while in the late 1970s owned a Formula 1 motor racing team—not a cheap hobby then or now. He also encouraged the commercial development of the Macau Grand Prix. Teddy Yip was, in addition, Dr Ho’s brother-in-law, having married Dr Ho’s sister Susie. The other member of the original STDM investor quartet, Yip Hon, was a Guangdong native who worked as a Macau casino manager prior to the Second World War. He also worked as a businessman in Shanghai before returning to Macau after the Japanese invasion of China in 1937.
In 1982, Yip Hon and Stanley Ho fell out over business matters and Yip Hon disposed of his interest in STDM. Cheng Yu-tung, founder of the Hong Kong conglomerate New World Development (and also more recently an investor in the SJM-licensed L’Arc casino), took his place. In 1986, Henry Fok also had a disagreement with Dr Ho, reportedly over the company’s business strategy and dividend policy, and he attempted to sell out. Dr Ho reportedly resisted this, and instead, Mr Fok made a gift of his stake to the Henry Fok Ying Tung Foundation in 2002.
On the last man standing principle, as of February 2011, the STDM shareholders are:
1) Lanceford Company Limited: 31.6% (This was held 100% by Stanley Ho until January 2011. The ownership of the Lanceford rights is currently disputed between a number of Dr Ho’s consorts and children.)
2) Shun Tak Holdings: 11.5%
3) Winnie Ho Yuen-ki: 7%
4) Henry Fok Ying Tung Foundation: 27%
5) Cheng Yu-tung 10%
6) Others 12.9%
It’s not surprising there’s been a tussle for control of Lanceford. Assuming for a moment that all the STDM shareholders have equal voting rights, and that the Hong Kong courts affirm the Pansy, Daisy and Lawrence Ho faction’s right to control (along with Dr Ho’s third consort) the Lanceford voting rights, then Shun Tak would undoubtedly vote with the Lanceford share bloc. Pansy and Daisy are managing director and deputy managing director, respectively, of Shun Tak. That would give direct ‘family’ interests 43.1%. Were Winnie Ho to vote with the other Ho family members, that would take the family over the finish line with 50.1% of STDM shares. Given her history of litigation with Dr Ho, however, her cooperation cannot automatically be guaranteed. That could then leave the balance of power with the Henry Fok Ying Tung Foundation, New World Development founder Cheng Yu-tung, and ‘Others’. Although Henry Fok’s family and the Chengs are long-standing business associates of Dr Ho, there is no guarantee they would owe the same allegiance to the above ‘bloc’ of Ho siblings.
Were Dr Ho’s fourth consort, Angela Leong, to gain control of Lanceford or its successor vehicle, that could potentially lead to stalemate at STDM, with the shareholders possibly breaking into three factions—none of them able to command a majority of votes. It may have been this fear that prompted the clinical ‘pre-emptive strike’ to inject the Lanceford share rights into Ho family-run firms Action Winner Holdings Ltd and Ranillo Investments Ltd. Action Winner Holdings Ltd is 100% owned by Dr Ho’s third consort, Ina Chan Un-chan, while Ranillo Investments Ltd is owned by Pansy, Daisy, Maisy, Josie and Lawrence Ho—Dr Ho’s five children by his second consort and second legal wife, Lucina Laam. The speed with which it was done may have related to the delicacy of Dr Ho’s health. To have delayed any longer might have been to invite claims that Dr Ho had given his consent to the transfer under duress. The fact that he subsequently appeared to revoke that Lanceford transfer consent, apparently asserting instead the right of his fourth consort Angela Leong to be consulted in the matter, put the free consent issue in the spotlight.
At the time of the SJM IPO, many analysts saw that company as a play mainly for locals with insight into local business and culture. That was because of the opaque way that STDM/SJM were and are still run. Before the recent shareholding and management changes affecting STDM/SJM, Inside Asian Gaming was told by industry sources that half of SJM reported to the CEO Ambrose So and the other half to Dr Ho’s fourth consort, Angela Leong. It’s anybody’s guess as to what the arrangements are at present.
There were also significant mutterings in the local market at the time of the SJM IPO that much of the 25% equity on offer had been bought up by Dr Ho or proxies for him or other Ho family members. The sources added that these proxy holdings were in each case below the threshold 5% of issued equity that under Hong Kong Stock Exchange rules would require the stockholders to be publicly identified. That could mean the minority shareholders are in even more of a minority than they imagined, with little prospect of forming a bloc powerful enough to at least embarrass family members feuding over control of the parent STDM to take their views into account.
Nor has very much been said about what China’s leadership would like to see happen to STDM/SJM. All the runners and riders for the STDM/SJM leadership roles so far identified by the Macau and Hong Kong media—including Angela Leong, Dr Ho’s children Pansy, Daisy Ho and Lawrence Ho, and Timothy Fok, a son of Henry Fok, have at the very least membership of a regional People’s Consultative Committee in China listed on their CVs. But then that’s virtually obligatory for any Chinese who wants to be successful in running a gaming operation in Macau or pretty much any major enterprise anywhere in Greater China.
Seen from China’s viewpoint, the succession question at STDM/SJM is not a purely commercial issue. Who has majority control of STDM/SJM and whom the majority shareholder or shareholders appoint to run STDM and SJM matters to China. That’s not just because SJM is currently the largest single operator in the Macau market, generating about one third of gross gaming revenue. Just as state companies inside the People’s Republic act as instruments of state policy as well as acting as commercial enterprises, so STDM/SJM, because of their history and roots, can be seen in some ways as commercial proxies for the Macau government and, by extension, proxies of Beijing.
There’s a joke recounted by Paulo Jorge Reis, a former deputy director of information under the Portuguese administration, that sums up how some of the Portuguese felt about the power of STDM, the holder of the 40-year gaming monopoly issued to Dr Ho and his business associates in 1962: “Stanley Ho used to sit at the right hand side of the governor, and a senior official from China used to sit on the left. When the governor needed money, he turned to his right. Then the governor would turn to his left to ask permission to spend it.”
Not a natural socialist
And yet Stanley Ho, by upbringing and outlook, was hardly groomed for a life as a natural ally of communist China. He is a great nephew of Sir Robert Ho-tung, an archetypal Eurasian tai-pan who helped to build the Hong Kong-based colonial trading company Jardine-Matheson. Sir Robert also helped fund the revolutionary movement of Dr Sun Yat-sen that led to the creation of the impeccably bourgeois Republic of China following the collapse of the Chinese imperial dynastic system in 1912. It was that bourgeois republic that the communists fought so hard to overthrow in the late 1940s after the Japanese withdrawal from China.
Even after he got his feet firmly under the table as ‘Mr Macau’, Dr Ho occasionally either overreached himself in his relationship with the central government or miscalculated the mood. He got into frightful trouble with Beijing in the run up to the handover of Hong Kong and Macau to China, when he suggested the territories ought to become United Nations-administered zones for a transitional period. And yet it’s a sign of his talent for survival in business and politics and of his current stature that it’s hard to see any of the so far named candidates for the succession comfortably filling his 49-year old shoes.
STDM/SJM without Stanley Ho, but still run by close and trusted associates of the leadership in Beijing is, though, a very much better prospect for China than an STDM/SJM run by an individual with looser ties to the central government. Such an individual might be more intent on taking the companies away from their family roots and down a more Western path as commercial entities majority-owned by public shareholders. By that reading, whoever acts as figurehead and/or steward of the largest single holding or largest faction of shareholders at STDM will need the tacit approval of Beijing, even if they don’t receive a formal coronation from the central leadership.
This is not merely nostalgia in Beijing for the early days of the PRC and Macau’s indirect role in sustaining the communist government. As a senior industry insider recently told Inside Asian Gaming: “Everything that happens in relation to the gaming industry in Macau is political—either at the local level or the central government level. China didn’t win back control of Macau after 450 years of foreign occupation simply to hand it back to foreigners via the backdoor of global capitalism.”
The awarding of the STDM monopoly in 1962 was attributed at the time to the company’s willingness to invest in tourism infrastructure. The full name of the company—Sociedade de Turismo e Diversões de Macau—echoes that. Under Portuguese rule, gaming has been legalised in Macau since 1847. The first casino monopoly franchise was granted to the Tai Xing Company in 1937, but it was reportedly too conservative to exploit the full potential of the industry and only Chinese games were played in the casinos at that time.
The new 1962 monopoly was also sold politically to the Macau community and the outside world as an attempt to re-organise and regulate the existing gambling industry, which had reportedly become infiltrated by triad gangs in the preceding decades. Current officials of the New Jersey Division of Gaming Enforcement might be interested to learn that back in 1962, Stanley Ho was considered one of the ‘good guys’ by the Macau government and hired to clean up the place. It was only in 1984 that STDM started allowing the casino-within-a-casino system (i.e. junket rooms managed independently of the casino licence holder and issuing credit to players) that today so concerns Western regulators and governments.
To understand how Macau got its post-Second World War reputation for being the ‘Wild East’ and simultaneously China’s ‘Mr Fixit’, we need to go back a little to the 1940s and early 1950s. China’s communist regime had been in power for less than one year when in 1950 it became embroiled in the Korean War, supporting the communist North against the Westernbacked South. From that year, the West imposed trade sanctions on China and its ally North Korea. Although the war (unofficially) ended in 1953, those sanctions continued right up to 1957 at the insistence of John Foster Dulles, US Secretary of State at the time.
Although China had a socialist economic system aspiring to self-sufficiency in all essentials, it, like present-day North Korea, still needed access to foreign currency and international traders to buy essentials such as medical supplies. From roughly 1950 onwards, Hong Kong- and Macau-based middlemen such as Henry Fok come into the picture. They supplied China with essential materials, accepting non-convertible renminbi as payment. They then used renminbi to pay for Chinese and Korean goods tradable on the world market including ginseng, honey and textiles such as silk. Those goods were then exported to the rest of the world in exchange for convertible currency and so the cycle continued. In those days before electronic banking and electronic surveillance, covering up the money trail hardly mattered. In any case, the Portuguese administration in Macau was hardly likely at that time to be a cheerleader for sanctions enforcement. It was weak locally and distracted by internal political problems back in Portugal, and thus primarily interested in avoiding unrest and having peaceful relations with China.
By the late 1950s and early1960s, the needs of the Chinese economy had outgrown that early barter system. It was in this era that many banks were set up in Macau specifically for the purpose of doing business with China. It’s no accident that many of the most prominent families in Macau and those with the best political connections to Beijing are the founders of, owners of, or shareholders in, those local banks. The spat between China and the US administration of George W. Bush back in 2005 over the Macau bank Banco Delta Asia and its dealings with North Korea is just a modern extension of Macau’s decades-long tradition of helping its beleaguered communist neighbours in the face of what has often been perceived historically to be Western economic and political aggression.
Those with a more cynical turn of mind suggest the modernisation of the Macau gaming industry in 1962 was due to pressure from China. The argument goes that as the mainland Chinese economy grew, it needed access to an efficient, and more importantly, biddable money laundering service on its doorstep for the purposes of covert external trade. Macau fitted the bill perfectly. Macau’s expanded and modernised casino system—regulated, but not overly so, and able to swallow up and process large amounts of cash via VIP gaming, was the perfect washing machine for Chinese cash according to the cynics’ narrative. IAG has seen no hard evidence to support that claim. Perhaps a more likely explanation is that in the early 1960s a cash-strapped Portugal was urgently looking for fresh ways to make its sprawling but creaky empire self-financing. Raising tax from the expansion of gaming and tourism was an obvious choice given the long history of gaming in the territory. Under STDM’s monopoly, the annual number of visitors to Macau rose from half a million in 1961 to two million by 1973, then four million in 1983 and more than eight million in 1996.
Since 2004, five more casino operators have joined the market alongside STDM’s successor, SJM. Four of them are foreign-owned or part foreign-owned (in the case of Melco Crown Entertainment and the joint venture between Pansy Ho and MGM Resorts International). In 2010, the number of annual tourist arrivals to Macau reached just under 25 million—fifty times the 1961 figure. And yet despite all the new infrastructure brought by outside investors, Macau still functions as a Ho family town and works to enrich that clan, their associates and allies.
Most of us arrive on a Shun Tak-operated ferry at an STDM ferry terminal. Or we land at an STDM-owned helicopter terminal, or fly in to a 33% STDM-owned airport, possibly on a 14% STDMowned Air Macau jet. Some of us stay at an STDM hotel (with or without casino). A few of us may live in STDM or Shun Tak developed housing developments. A handful of us may one day have our ashes laid to rest in a columbarium Shun Tak plans to build in the territory. It seems that even in death, there’s no escaping the influence of the Ho family’s business ties in Macau. A question is, can the Ho family take advantage of the political goodwill on offer from Beijing and build on Stanley Ho’s legacy, or will they turn inward and devour each other?