Sunday, 18 November 2012

'Lunch is for Wimps', Belgian Thunders

Move over Marc Faber, Thailand's new 'Dr Doom' has arrived. This is a piece just filed for November's edition of Finance Asia on Stephane De Baets, iron-willed investment banker, part time 'Belgian Thunder' triathlete and ironman, prognosticator and seer, and all round good chap. Edited down somewhat for the magazine, I've put the original piece in full here.

Investment banker with a difference Stephane De Baets is a breath of fresh air. The towering, boyishly touselled Belgian breezes into the bar in Bangkok’s trendy Soi Ruam Rudee, oozing enthusiasm and energy.

“There are a few things I’d like to talk to you about,’’ he says. “One is a new form of private equity venture which I believe takes a ground-breaking approach to fund management. The second involves reinventing fine dining. And I’d also like to touch upon inside out money flows, if I may.’’

While most investment bankers are content to merge, acquire and move other people’s money about, De Baets is on a different trajectory. When he’s not training for his next gruelling Ironman race, the founder, managing director and star turn at small but impeccably connected Bangkok boutique investment bank OptAsia Capital prefers to spend his time dreaming up new ways of doing things, taking aim at sacred cows and generally thumbing his nose at the establishment.

His no-holds-barred weekly ‘Trading Notes’ has become something of a cult publication in certain Bangkok circles for its bold predictions and colourfully tortured language: he is less of a gloom merchant than Mark ‘Dr Doom’ Faber, but when the mood strikes him, De Baets does a fine turn as contrarian Cassandra, railing against everything from Europe’s ‘slow motion, freeze frame car wreck’ to China’s looming hard landing and the mainland’s overvalued ‘laundry markets’ of Hong Kong and Singapore while referencing everything from the Fibonacci sequence, video games, hip hop to obscure Morrissey lyrics.

De Baets and OptAsia Capital are on a roll, having just inked a joint venture with Japan Asia Investment Co. Ltd (JAIC), a Nikkei-listed venture capital behemoth. “JAIC had an office here in Thailand that was basically going nowhere. So we had a good look at the model of private equity and venture capital and decided the old model of setting up a fund, raising money and managing that money is a very tedious process, it’s very long, takes six months to a year just to do a first closing. So we came up with a new concept, the Bangkok IT Alliance, a joint venture agreement between JAIC and Opt-Asia Capital.’’

Like a ‘deal of the week’ club, companies pay a membership fee of 3,000,000 Yen, which gains them entrée into the networked world of De Baets and OptAsia and the massive resources of JAIC. ‘Our first client is So-Net, a subsidiary and the internet arm of SONY and a multi-billion US dollar market cap company,’’ he says. “So rather than have to go to a board and approve a multi-million dollar capital commitment, as per the old model, a CEO can approve our membership fee, and for that fee we introduce them to investment opportunities and venture opportunities. The Alliance is sole advisor under a fee and option agreement on any deals struck. The time to market to realize the investment is much faster.

“For example, from the first trip to Thailand by So-Net executives in July, we introduced them to five companies and we are now in the process of closing a deal with TOT, to develop Thai content for the internet.’’ De Baets says one of his OptAsia colleagues is in Japan now ‘evaluating the prospects of three potential new members’ of the Bangkok IT Alliance.

With a practiced eye, he scans the bar’s wine list, selects a crisp New World Sauvingon Blanc, and waves the waiter away to the cellar. Which brings him neatly to his second stated passion - hotels, and in particular wining and fine dining in five star hotels - by way of his third cited topic of conversation.
“OptAsia Capital was a pioneer of sponsoring outflows of Thai money to be invested overseas,’’ he says.

"Most of the fund flow in Thailand is basically Templeton, Mark Mobius’ global fund, buying Thai companies. We do the opposite. We raise money in Thailand and we deploy it overseas. There were limitations to that because after the 1997 ‘Tom Yum Koong’ crisis, the Central Bank put capital controls in place, and really until 2010 we still had the legacy of those controls. But the Democrat Finance Minister Korn (Chatikavanij) lifted those restrictions in March 2010.

 “We had the first letter of intent to purchase a hotel two weeks after the controls were lifted. It was the W Westwood in Los Angeles. We put in an offer for US$80 million but didn’t buy it because of certain legal issues. Perhaps we should have in hindsight.  It just sold last week for US$125 million."

De Baets had another impressive iron in the fire, however. He and his client, 315 East Dean Associates Inc, had their eyes on the grand old dame that is the St Regis Aspen. According to The Aspen Times of October 2nd, 2010: “OptAsia Capital Co. purchased the St. Regis for $70 million from Starwood Hotels & Resorts this week. Starwood will continue to operate the hotel as a St. Regis.

“In addition to the $70 million purchase price, OptAsia committed to a “major renovation” of the resort, including the refurbishment of all hotel guest rooms and public areas, Starwood said in a statement. The renovation will also feature incorporating the extensive courtyard space into dining outlets for year-round seating. The hotel plans to promote enhanced après-ski offerings.’’

De Baets now puts the total investment ‘north of US$115 million’. “In the post-Lehmann crisis, a credit crunch for a lot of companies in US meant they had to make statements to their shareholders about how they would secure equity and cash access.

“One of the companies we looked at was Starwood, which is a hotel operator but also has many assets of their own. They told their shareholders in 2009 that their policy was to become operators only. These companies were targeted to sell the assets that needed cap ex for refurbishment or renovation. We identified the hotel in a market with very extremely high barriers to entry and trading at significant discount to replacement cost. We bought the hotel very cheaply from the operator but in return we gave them 50 years management contract. So it was a win-win proposition for everyone.

“OptAsia managed the whole process on behalf of our client, including overseeing about US$40 million of renovations by award-winning designer Lauren Rotett, reinforcing the hotel’s style, innovation and position on the new global Grand Tour itinerary.

“It’s a Grand Old Dame, a trophy asset. It takes you 10 years to get a building permit in Aspen if you are lucky, so the number of rooms is very limited, people need to go and ski in Aspen so it was a no brainer.''

De Baets said OptAsia was now looking at hotel deals in Spain and Italy, while he was about to jet off to Burma to bid on buying a prime colonial Yangon government building to turn into a boutique hotel. “I would like to believe we are in the lead on that one,’’ he says.

But it is the subject of Chef’s Club that gets De Baets most fired up – his brainwave that he believes will shake up the global fine dining restaurant industry by the time he is done. De Baets has stitched together a deal with Starwood Hotels and FOOD & WINE magazine 'to create a revolutionary concept in which the restaurant becomes a space where culinary talent is expressed’.

 He says he was inspired by food festivals in Asia that saw top chefs converge on a restaurant or destination to create something special.  “So that got me thinking – instead of the usual ‘one chef, many restaurants’ franchise, why not do ‘one restaurant, many chefs’. So we have assembled a team of some of the world’s finest upcoming young chefs, and each chef will have the opportunity to express themself in multiple locations and to express their art on a global basis.

 “The restaurant is the medium , the food is the content. Through rotation , the content is always changing.’’ The debut Chefs Club by FOOD & WINE is in the St Regis Aspen, of course. FOOD & WINE’s Best New Chefs are curating a unique menu of seasonally-inspired, American Regional cuisine for The St. Regis Aspen Resort. They include George Mendes of Aldea, New York, NY, James Lewis of Bettola, Birmingham, Alabama, Alex Seidel of Fruition, Denver, Colorado and Sue Zemanick of Gautreau's, New Orleans, Louisiana. They have been chosen to inaugurate the menu, which will rotate bi-annually. These chefs will be in attendance at the 2012 FOOD & WINE Classic in Aspen.''

De Baets confidently predicts there will be 10 to 15 Chefs Club restaurants globally by 2015. “I have been scouting NYC locations in October,’’ he said. “The plan is to have NYC, Chicago, and either SF or Las Vegas either opened or committed by end of 2013.’’
De Baets obtained his Master in Business Administration from the Solvay Business School, Universite Libre of Brussels, and began his career in Europe as an auditor working mainly with the European Community. He moved to Asia in 1994 where he worked as head of institutional sales for several Thai brokerage houses.

According to his biography, he was instrumental in positioning Seamico Securities as the leading Thai independent brokerage house helping raising its market share from 1% to 7%. In 1999 he joined a boutique investment bank and successfully raised US$500mm for Bank of Ayudhya Plc., through private placement. He also structured and executed several take-over of listed and non-listed companies including DTM, PAE and others.

In 2003 he joined Grant Thornton as Head of Corporate Finance in Bangkok where he advised many listed and non-listed companies in their M&A and capital raising strategies. In 2008, he left Grant Thornton to start OptAsia Capital, which officially describes itself as: “A dedicated boutique investment bank specialising in the real estates and hospitality sector.’’

“OptAsia does capital market strategy for a few clients, listed companies in Thailand,’’ says De Baets when pressed on what else sets the company apart. We look at companies that have a strong business model but not the recognition from the market. We draw a three to five year plan and say if you want to be investable by the top tier fund managers this is what you have to do.

 “And we follow them over a number of years. I’ve been active in this market 20 years, so I have a feel for which companies have untapped potential. We show them a few things we can do, and build up from there.’’

While De Baets demurs to discuss individual clients, citing confidentiality clauses, it is no secret in financial circles that among their client roster are names including top property performer Sansiri Plc, Kronburi Sugar (KBS) , state telecom giant TOT, Nation Multimedia, as well as Indorama and BTS, the Skytrain operator.

The firm does handle mergers & acquisitions, property funds, debt restructuring and other Investment Banking 101 pursuits, but clients come for the charisma and network of De Baets, along with a close knit cadre of well-connected and well-born Thais including directors Annop Saengvanich, Supachai Wongvorazathe, CFA, associate director Voraphot Chanyakomol, and manager Jirawath Pipadweeradej.

Carla Murray, Starwood Senior Vice President – Operations, says De Baets impressed her with his “extreme dedication’’ to his client during the St Regis Aspen deal and subsequent Chefs Club negotiations. “He works hard to earn their trust.  He thinks big picture, but will also dig through the details.  With hands-on experience from hotel operations in Asia, he is always challenging everyone to do their best.”

Iain Melville, partner of law firm Mayer Brown JSM, who also worked on the St Regis deal, observes: "Stephane immerses himself in his client's business and at times seems to know more about it than his client.  This is certainly the case with the financials, but also true with regard to the commercial and technical aspects.  He ‘lives the deal’, and is on call at all hours.’’ He said De Baets also was a quick study when it came to complex legal issues.

De Baets says his Ironman exploits have affected his philosophy of investment banking and business in general. “It all started with wanting to achieve a goal and taking a long time to get there. What Ironman has brought to me in my work is the ability to look at a deal and say, right, in two years this is what I want this deal to be like, or this company to be like, and then to set the discipline on a micro-timeline.

“Things don’t happen by chance. Well, OK, maybe they do, but I believe you can influence things simply by structuring your approach. And that was the biggest lesson Ironman gave to me, how do you set yourself a target and stick to it. Your coach will tell you, if you stick to this schedule, I guarantee you will cross the finish line. So it’s self discipline.

“But it also becomes addictive … the release of dopamine and serotonin. It becomes an integral part of the working day to have that break that clears my head. From 11.30 to 1 or 1.30 I go to the gym, or swim. I don’t do lunch - although it is common practice in my industry to do client lunches. My clients understand and respect my objectives.’’

Lunch may be for wimps; hunches, apparently, are just fine. De Baets is never backward in coming forward with a bold prediction, a spot of prognostication or some generally savvy soothsaying. “Global monetization will be full swing in 2013, and currency debasing will be a race to zero,’’ he says, when asked for his latest thoughts. “We’ll see low global interest rates, with even possible negative interest rates in some parts. This will be the swan song for ‘fiat money’
Thailand, he suggests will continue to be more boom than doom, with an ‘all time high’ for the SET looming. “The US is muddling through until a second wave of asset sales, kind of bouncing off the bottom. The peak of the market was 2007, most of the funding that took place had a five year free ride but a lot of refinancing is taking place now so there will be a lot more commercial assets on the block. As long as you print money people want to buy property because it’s a good inflation hedge.’’

China, meantime, is entering a period of structural change, he says, which will be a testing time. “I am predicting a hard landing but since they do have a single party political system, it’s easier when you have to take the medicine than in a democratic process.’’

It’s Europe, however, that really fires his ire. “I personally believe the European monetary union doesn’t make sense. It’s a gentlemen’s club where as long as everyone is making money, everyone’s happy - but when the hard times come, people emphasise their own survival and this is where the union will break apart. I predicted the Euro would disintegrate or not exist in its present form about four years ago. I still believe it.''

Vietnam, he cautioned, had gone from the darling of investors just four years ago to ‘a complete basket case’. Non-performing loans in the banking system are closer to 40% than then 5% the government admits, there is a witchhunt for corruption, and officials are scared an ‘Arab spring’ may be around the corner.
Vietnam could be the model for the looming China crisis, he says, while the problems of Europe have not gone away. “Investors who still believe that Super Mario (EU title etc) has found a magic money tree in the backyard of the ECB should wake up and smell the roses.

 “My overall advice? Borrow as much as you can at long term fixed interest rates. Buy property, commodities. Money is so cheap right now.’’ The other alternative, says the Ironman, is to go for gold.


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