Pakistan’s mystery billionaire

Habibullah Khan is on a company shopping spree like nobody’s business, yet no

one knows who he is.
By Kazim Alam , Farooq Baloch - April 2, 2018

“He’s the Howard Hughes of Pakistan. Nobody ever

sees him. You’re the first ones (among journalists) who
are going to witness him in the flesh,” said the person
who ushered us into a conference room on the second
floor of the recently built 26-storey Mega Corporate
Tower near Teen Talwar, Clifton.

Habibullah Khan is sitting at the head of a large table.

With a few loose pages and a smartphone in front of
him, he looks very much like a businessman. He stands
up to shake our hands. He’s wearing a well-worn pair
of glasses and has a Mediterranean tan.

In short, nothing in his appearance gives away the fact

that he could soon be practically the single largest
player in the cement industry with plants in each of the
four provinces, that he owns a container terminal, runs
the largest shipping and logistics businesses in the
country, has just sold a real estate property in the
biggest deal of its kind to Habib Bank, and will soon be
setting up a six-star international hotel on the most
prime piece of land in Karachi that he just acquired.
He’s also the largest player in dairy after Nestle and
Engro Foods.

Most importantly, he’s actively working to acquire a

financial institution besides being a huge player in the
energy sector, having recently acquired a major stake
in Hub Power (Hubco).

“I’m the largest private equity player in this market,”

he says, adding that three of his companies are among
top 30 taxpayers.

Very few of his assets are listed, so it’s difficult to get

to an accurate figure regarding his net worth. Apart
from a small group of old friends who he socialises
with, few Pakistanis are familiar with his name, let
alone his face. Yet his numerous businesses play a
central economic role in the daily course of events in
the life of an average citizen.

Like Hughes, an eccentric and one of the richest

American businessmen of his time, Khan guards his
privacy grudgingly. Google his name and you won’t find
even a single interview or photograph on the internet.
He avoids the media like a plague. In fact, when he
acquires an asset, he ensures that the purchase
agreement includes a no-publicity clause.

Unlike other businessmen in Pakistan, he

almost never sits on boards of the
companies he owns (their number runs in
dozens) and he prefers to let management,
independent members and his son take the lead on
boards.

Steering clear of banks

Another reason Khan has managed to maintain a low
public profile is that none of his assets are borrowed.
Instead of borrowing from banks, he uses his own
funds to buy companies. The latest example being
Hotel Metropole, a near-abandoned hotel complex
spread over 4 acres right in the middle of the financial
district of Karachi.

“It’s not a simple transaction in the sense that there

were many legacy issues with the property and
financing it would have been a long drawn-out affair,
which would have collapsed the deal,” he says. After
all, being liquid and debt-free at the same time is the
dream of a private equity guy on a buying spree.

Past owners of Hotel Metropole are Zoroastrian, more

commonly known as Parsis, a fast ageing and
dwindling religious minority that once dominated the
commercial landscape of Karachi. Apparently, they had
been trying to sell that property for a decade. There
were many interested parties, but few had the kind of
liquidity and appetite to consummate the transaction
fast. Except for Khan.

“By the grace of God, within two months we closed the

deal,” he says.

And what he’s going to do with this prime land

surrounded by national landmarks, elite clubs and
business centres in the middle of the world’s eighth
most populous city? He says he’ll build Pakistan’s first
six-star hotel. “We’re going to make a district with four
different components. One will be a globally recognized
six-star hotel. Next to that we’ll have branded
apartments sharing the hotel’s facilities. Then we’ll
have an office tower and a utility (centre). We will
make a bypass as well, so we create the condition for
traffic to move freely around the project and in the
area. We want to build a city within the city and we
have been working extensively to achieve this,” he
says.

The company is considering awarding the design

contract to renowned British-Iraqi architecture firm
Zaha Hadid Architects or Louis Vidal of Spain both of
whom have already given their proposal for the
complex. A third UK architecture firm is in the running
as well.

Khan is planning to have a debt-to-equity ratio of

30:70 for the project. He’s going to have a hybrid
Sukuk, which is an Islamic bond that promises
ownership in a real, tangible asset, such as real estate.
“We have already bought the land, which can be a part
of the equity. We’ll try to bring in foreign investment.
We’ll try to bring sovereign funds to join us in the
development,” he says.

That Khan was able to come up

with funds to acquire Hotel
Metropole in such a short span
of time was partly because he
had just sold Mega Corporate
Tower to HBL. He’s also using some of the proceeds
from the Mega Corporate Tower sale to partially fund
the next real estate project in Lahore. He built Mega
Corporate Tower using his own funds. But now he’s
tapping into banking channels to expand further.

For instance, his latest acquisition of stakes in Hubco

and Dewan Cement are partly financed by banks.

Banks lend him happily: the group has strong balance

sheets other than that of Mega Conglomerate to
borrow against. In fact, Mega Conglomerate is hardly a
conglomerate in the sense that it controls only a
fraction of the myriad of national businesses that Khan
owns in as many as seven industries. As per his own
reckoning, Mega Conglomerate represents only a small
part of his business empire.

“So are you a billionaire in dollar terms?”, we ask.

With a sparkle in his eyes, he flings the question back
at us: “What do you think?”

His father’s son

Like any big conference room in a corporate office, this

one too has many large-size windows. But all curtains
are drawn. We’re told Khan likes to sit in a room with
drawn curtains – another eccentricity that he shares
with American aviator Hughes who would stay in a
room for months on end and communicate with the
outside world only through his staff.

He has no qualms in admitting that he was born with a

silver spoon in his mouth. But his father was a
professional, not businessman. Asadullah Khan was
Pakistan’s first gas engineer who helped create what
today is Sui Gas. “My father was instrumental in
setting up the oil and gas industry in Pakistan. During
Ayub Khan’s days, he used to represent Pakistan in all
the global oil and gas conferences,” he says.

From KGS to London, and back

Khan studied at Karachi Grammar School but moved to

boarding school in England when his father left the
country in 1972. After completing school, he went to
Imperial College in London and was part of the first
batch of computer engineers that graduated in 1979.
His next stop was the University of California in San
Diego where he worked on the Columbia satellite as a
computer engineer. Then he went to Berkeley to study
management science and industrial engineering.

His one-year stint at an American engineering giant

Bechtel ended when his boss told him he was ‘too
ambitious’. “They said move to Europe, you’ll do much
better. They wanted to put me on a platform in Norway.
I said forget it. Then I came back to Pakistan,” he says.

Khan started off in software and then moved into first

textile and then shipping in 1985. “By 2000, we were
the largest [in shipping]. We bought Qasim
International Container Terminal (QICT), where the DP
World is our partner today. We used to control 42
percent of anything that came in and out of this
country in containers. Over time, I felt that we needed
to diversify so that is when we entered into other
businesses,” he says.

He used to have 20 container carriers out of which five

of the world’s largest global carriers were his partners.
Then he expanded into downstream, which means he
built his own trucking company and inland container
depots.
metro timeline Venngage Infographics
Buying distressed assets

In his latest letter to Berkshire Hathaway shareholders,

Warren Buffett wrote that major declines offer
extraordinary opportunities to those who are not
handicapped by debt.

Khan says he continues to buy distressed assets using

his own money. “I never liked debt. I never borrowed
from banks… We bought (QICT at) Port Qasim,
distressed; Haleeb, distressed; cement, distressed”. He
is the only one who’s actually done large-scale M&As
(mergers and acquisitions) with his own money.

His record of buying distressed assets from banks is so

consistent that banks actually go to him when they are
stuck with a distressed asset. On his last deal, one of
the banks sent him a “Superman” cake.

Even Mega Corporate Tower on which he just booked a

capital gain was bought from a consortium of banks
who had extended a big loan to LG that went into
default. Now the market is down again, he says, so
he’s looking to continue buying.

If he buys Dewan Cement, he will be salvaging

the largest financial default in the 70-year
history of this country. Dewan Cement notified
its shareholders on January 31 that Mega
Conglomerate showed interest in acquiring 87.5
percent shares in the company. The share price
was Rs 26.38 on that day. It closed at Rs 27.29 on
March 9.

Dewan Cement posted a net profit of Rs1.3 billion in

2016-17, down 13 percent from a year ago. Its total
assets amounted to Rs30.2 billion at the end of the last
fiscal year.

Khan’s approach to reviving a debt-ridden, sick

enterprise involves cutting down expenses ruthlessly
even if it means laying off people. “If I buy a company
that has a lot of debt, the first objective for my CEO is
very simple: my debt has to be zero. I can’t sleep at
night (until that happens),” he says.

If the deal goes through, Khan’s group will be the first

player to have a cement-making plant in each
province. This will help the group survive downturns in
domestic demand by allowing it to export surplus
production, he says.

Besides showing interest in acquiring Dewan Cement,

Khan has recently acquired a significant stake in Hubco
from Dawood Hercules and become its chairman.

The Dewan Cement acquisition was already anticipated

because of market talks about another cement
company, also owned by Khan, eyeing a stake in the
former. However, his purchase of a stake in Hubco,
which currently generates 1,200 megawatts, came as a
surprise to many, who were left scratching their heads
as to what he was up to.

“He’s on an acquisition binge,” said one analyst,

responding to a question about why Khan would invest
in a power company. “He has a lot of liquidity,” said
another, referring to Khan’s back-to-back transactions
worth almost Rs 31 billion, which not only moved the
market but also brought him in the limelight for the
first time.
Electricity at slightly above one-third the present
price

Market analysts may still be guessing the rationale

behind his interest in Hubco, but Khan is sure about it.
He has bought a stake in the country’s largest
independent power producer (IPP) with a plan that
Hubco becomes a leader in electricity generation.

“We want to work with the management and the board

to make Hubco local and Hubco International,” says
Khan. “We’ll try to go into Africa. We will try to go into
other places in the world.”

But how will he, given that he doesn’t own an outright

majority in the company? As of June 30, 2017, Hubco
had five directors from Dawood Hercules and one each
from NIT and Fauji Group.

“It’s simple,” Khan says, his voice filled with

confidence. The board is very competent with
institutional investors such as Fauji Foundation and NIT
representatives on it and he plans to bring his plans to
the board and with their approval have the board guide
the management to embark on a growth strategy.
“We’ll buy more assets and we’ll collectively put more
equity into it [Hubco] if need be, to me it is clear we
are all on the same page,” he says of the IPPs
governing body. “We want to generate 20 to 25 percent
of the country’s power. That’s the plan,” he says.

As we press him to share with Profit his post-

acquisition plans for Hubco, Khan says he’d like to
bring the electricity cost down and create the right
energy mix by adding components of renewable energy
to its portfolio.

“Today, our average cost is 12.96 cents per kilowatt.

Bangladesh is at nine cents, India at 10. We have to
come down to eight cents,” Khan says. The country
cannot become competitive in local manufacturing or
the export market unless it brings the cost down and
for that, we need to add renewables to our energy mix,
he adds.

After Hubco’s
acquisition, Khan plans
to install solar panels
and smart meters at
the household level. He
wants to create a
deregulated economy
whereby customers will
pay him for power
consumption and solar
panels and eventually become owners of the
equipment.

Installing solar panels, which don’t come cheap, in one

of the world’s largest cities will need a big investment.
Khan seems to be aware of that as he plans to issue a
bond especially designed for the general public from
Hubco’s platform.

He also plans to set up a desalination plant and use the

company to power that plant and provide water to
Karachi; collect waste from the port city; and make
regional hubs. “I’ll set up various 30-megawatt plants
and give power to households in those areas and that,
too, at five cents (a unit). This is what my plan is,” he
says, adding that it should all materialise within two
years.

The Haleeb turnaround

Khan’s move to buy Dewan Cement and Hubco is in

line with his core strategy: buying a distressed asset at
a time when the market is down and turning it into a
profitable entity.

To understand his strategy, one has to look back at the

turnaround of Haleeb Foods Limited (HFL), which he
owns.

A one-time dairy giant, which had more than half of

the packaged milk share till 2006-07, was bleeding
money hand over fist when Mega Conglomerate bought
it from Chaudhry Dairies Ltd (CDL).

HFL lost focus on white milk conceding market to Engro

Foods’ Olper’s, hitting its worst crisis in fiscal year
2008, small wonder then that its share was down to 2
percent last year as already reported by Profit in a
recent article.

While buying HFL, Khan did a put or call option with

the former owners. He invested a certain amount in the
company and allowed CDL’s former management to run
 it for 18 months and turn it
around by meeting the Key
Performance Indicators (KPIs)
he had set. The tradeoff for HFL
was that if they failed to meet
those KPIs, Khan would exercise
his call and take over the management — and that’s
exactly what he did.

“The day I took over the company we were losing Rs

100 million per month,” Khan says of HFL, which is in
the dairy business for 35 years. In 2011-12, HFL
reported a loss, but it was back in profit the next year.

The new management revamped the company, revised

the strategy and turned it around. “Why are you selling
yogurt when you’re not making money,” Khan says,
recalling his instructions to the new management.
“First break even then grow.”

When Khan took over management control, HFL had Rs

4.5 billion in debt, which they removed from their
balance sheet. He didn’t spend any money on
advertising. Known for his tight control over costs,
Khan instructed the new management to lay off about
300 employees. “It was the only way to survive,” he
says in a matter of fact tone.

Though HFL still has a long way to go before it

recaptures the share it has lost to competition in white
milk, Khan says they are now number one in the tea
whitener category as Engro’s Tarang, which had more
than 50 percent share of the market till last year, was
hit hard by recent government policies. Profit already
covered this in detail in a previous report.
Khan bought HFL right after it hit its worst-ever crisis
and turned it around after replacing the old
management with a new one and that remains his core
strategy. “I never buy at the market’s peak,” he says.

He bought Hubco when the market was down and the

government changed its policy, instructing IPPs to
move away from furnace oil-based power plants and
adopt coal and LNG. Same goes for Dewan Cement,
which is a big defaulter.

Love thy banker

Khan may like to stay away from debt and self-finance

even massive infrastructure projects. But he loves the
idea of owning a bank. After an attempt to buy Meezan
Bank in 2013, he’s planning another move to purchase
a commercial banking institution.

This time around, however, he’s looking at both Islamic

and conventional options. “It doesn’t matter, as long as
we can enter the financial services sector, Insha Allah.”

What matters instead is the size of the bank he wants

to acquire. He says he’s looking at any bank that has
600-plus branches.

His bank will create debt instruments and derivatives,

things that are not being done too much right now, he
adds. He also plans to establish operations in China.
“The only difference between my bank and others will
be that my model is going to be on systems,” he says
while waving his cell phone. “We’ll try to create a great
smart thing for people to do whatever they want… We
will invest a lot of money on IT and digitalise banking.”

Looking eastward for inspiration

Advancing years often make successful people wonder
about their legacy. But Khan is thinking beyond funding
a hospital, school or mosque, the usual path for
seeking solace among ageing local seths.

He looks at Ratan Tata and Dhirubhai Ambani of India

for inspiration. “I want to be a Tata, so my legacy
continues for generations to come,” he says.

Secondly, he plans to do what Ambani did in Reliance.

“I’ll create with my goodwill and whatever hard work
I’ve done a Mega bond. I’ll ask people to invest Rs10 in
that bond so that in five years, that Rs10 is worth Rs1
million… so (people) can educate their children, get
them married, buy a house.”

He’s acutely aware of the fact that very few Pakistani

business families have survived the test of time since
1947. People grow rich, they die, and with their death,
their names die, too. He’s lived most part of his life in
obscurity. But he wants to bow out in a way that keeps
his name alive.

“I want to give back to my nation, by them investing in

me I want to create trust, security and long-term
stability in people’s lives.”

Kazim Alam
Is a senior financial and economic correspondent at Pakistan Today