Shangri-La Asia Ltd.

21/F CITIC Tower
1 Tim Mei Avenue Central
Hong Kong
Telephone: +852 2525 9146
Fax: +852 2523 8842
Web site: http://www.shangri-la.com

Public Company
Incorporated: 1971
Employees: 16,300
Sales: $726.0 million (2004)
Stock Exchanges: Hong Kong Singapore
NAIC: 721110 Hotels (Except Casino Hotels) and Motels

Shangri-La Asia Ltd. is the Asian region's leading and fastest-growing luxury hotel group. The company, part of Malaysia's Kuok Group, operates 45 hotels throughout Asia. In 2005, the company also began a drive into the European and North American markets, including the launch of construction on its first European hotel, in London, expected to be completed in 2009. The company also has opened its first hotel in the Middle East, in Dubai, and in the Maldives. Mainland China, however, forms the heart of the company's empire, with more than 20 hotels in operation, and at least 15 more expected to open before 2010. Shangri-La is unusual among international hotel companies in that it owns a significant proportion of its hotels; of the hotels under the group's management not wholly owned by the company, most are owned by other companies in the Kuok Group, and especially by Shangri-La's own major shareholder, Kerry Properties Ltd. Shangri-La hotels primarily operate under the luxury, five-star Shangri-La brand. The company also operates a smaller number of mid-range, business-oriented Traders hotels. Listed on the Hong Kong and Singapore Stock Exchanges, Shangri-La remains a tiny part of the Kuok business empire. Nonetheless, founder Robert Kuok holds an active interest in the group, and has stated his desire to see Shangri-La reach 100 hotels in his lifetime. In 2004, the company posted revenues of $726 million.

Kuok Family Origins in the 1970s

The Kuok family immigrated to Malaysia, then under British control, from the Fujian province in China in the first decade of the 20th century. Under patriarch Kuok Keng Kang the family entered the trading business, dealing in rice, flour, and sugar. Kuok, like many successful Chinese emigrés, sent his children overseas to study. Son Robert, born in 1927, went to the Raffles school in Singapore, where he became good friends with Tun Abdul Razak and Tun Hussein Onn, both of whom later became Malaysian prime ministers, and Lee Kuan Yew, who became the first prime minister of Singapore after its independence.

Although his education was cut short by World War II, Robert Kuok's friendships were to play an important role in his later career. Kuok's use of "guanxi" (which in Chinese refers to having a network of prominent allies) enabled him to build his empire rapidly both during and after the war. Kuok also was gifted with the ability to spot opportunity, and especially to see into the long term. During the Japanese occupation of Malaysia and Singapore during the war, Kuok went to work for Mitsubishi, where he learned Japanese. This enabled him to emerge as an important supplier of basic foodstuffs.

Following the war, Kuok recognized that heavy competition and low margins had made the rice trade unattractive. Instead, Kuok switched his efforts to the sugar trade, and moved to England, where he learned his way around the commodities markets before returning to Malaysia. Following Malaysia's independence in 1957, Kuok's guanxi enabled him to build a true sugar empire, developing significant plantations. In 1959, Kuok entered sugar refining as well. Before long, Kuok had established a reputation as the "Sugar King," controlling as much as 10 percent of the world's sugar supply.

Despite remaining a minority in Malaysia, the ethnic Chinese community had long dominated the country's economy. Growing demands for a more equitable distribution of wealth in the country led Kuok to transfer his business empire to Singapore in the late 1960s and early 1970s. Nonetheless, Kuok supported the need to establish a more equitable distribution of wealth, if only to ensure the country's political and economic stability.

At the same time, Kuok had begun to expand his business interests into other areas. In the mid-1960s, for example, Kuok entered flour milling and trading. The Kuok Group, as Kuok's business empire came to be known, also added interests in palm oil (PPB Oil Palms Bhd.), tanker operations (Malaysian Bulk Carries Bhd.), and even media interests, particularly the South China Morning Post. Yet among Kuok's most significant and most successful ventures was his entry into the real estate and property development sector in the early 1970s. Kuok's Kerry Properties became his real estate flagship, emerging as one of the leading property groups in Hong Kong, with significant real estate holdings and developments throughout the Asian region, including the Chinese mainland, as well as Australia and elsewhere.

Among Kuok's early real estate purchases was a hotel property in Singapore. Built in 1971, this property became the starting point for the later Shangri-La luxury hotel chain. Initially, the Kuok group turned over the management of its hotel property to Westin Hotels. In 1981, however, the company added its second hotel, in Kowloon. The new hotel marked Kuok's entry into direct hotel management, as well as ownership. Launching the Shangri-La brand, Kuok founded a new company for its hotel interests, Shangri-La Hotels & Resorts, in 1982. An important factor behind Shangri-La's later success was Kuok's willingness to turn over its direction to hotel industry professionals David Hayden and Robert Hutchinson, both of whom had worked for Westin.

Claiming the Chinese Mainland in the 1990s

The combination of Kuok's guanxi and the market experience of Hayden and Hutchinson enabled the company to make a significant move in the mid-1980s. In 1984, the company opened its first hotel on the Chinese mainland, in Hangzhou, on the eastern coast, becoming a pioneer in the country's virtually non-existent luxury hotel market. The company's choice of that market also revealed its ability to plan for the long term. Rather than simply target China's major and most well-known markets, such as Beijing and Shanghai, Shangri-La saw potential in developing its position in lesser-known and smaller cities. In this way, the company's properties became the first—and often only—luxury hotel in a given area. Many of these cities nonetheless had populations of five million or more, and represented important industrial growth areas.

Shangri-La launched a second hotel brand in 1989, with a first site in Beijing. Called Traders, the new hotel chain gave the company a mid-range brand, with sparser accommodations. Nonetheless, the company installed the same level of luxury services at the new Traders hotel, as a part of its creation of a bridge level between the four-star and five-star hotel grades. Traders represented part of the group's long-term strategy as well, targeting locations with no luxury hotels. By introducing the Traders brand, the company hoped to develop a market for luxury hotel services, paving the way for the entry of its Shangri-La brand as well.

Shangri-La grew only slowly during the 1980s, however. By the beginning of the 1990s, the group counted just six hotels. Yet the company had developed a strong foundation for growth into the new decade. In the early 1990s, the company doubled the number of hotels, owned by Kerry Properties and other Kuok companies, adding sites in Hong Kong, the Philippines, and Fiji. In the meantime, the Kuok Group began expanding its property interests in mainland China, launching 12 new developments, including hotels, in the early 1990s.

In the mid-1990s, Kuok set up a second property ownership vehicle, Shangri-La Asia Ltd., which paid the Kuok group HKD $4.2 billion to acquire the existing Shangri-La properties in 1995. Shangri-La Asia was then listed on the Hong Kong and Singapore Stock Exchanges, reducing Kuok's stake to less than 63 percent. The following year, Shangri-La Asia paid another HKD 2.5 billion ($321 million) to buy up the 12 Kuok hotel properties under development in China. Then, in 1997, property-owning Shangri-La Asia took over hotel management company Shangri-La Hotels & Resorts, becoming an integrated hotel management and ownership group.

By the end of the decade, Shangri-La's portfolio had grown to 39 properties, including 17 hotels in operation or under development in China alone. Indeed, the company's early focus on the mainland Chinese market helped shield it from the worst of the Asian economic crisis in the later half of the 1990s, from which China emerged relatively unscathed. The company's strategy of investing in relatively unknown areas of the mainland also had placed it in a strong position to profit from the surge in China's industrial sector and from the country's fast-growing economy in general at the dawn of the 21st century.

Shangri-La also had begun developing its interests beyond the Asian region. At the beginning of the century, the company added its first hotel in the Middle East, in Dubai. The company also acquired its first North American property, the Pacific Palisades in Vancouver, Canada.

Global Luxury Hotel Empire in the New Century

The early 2000s proved a difficult period for the company, however. The global dropoff in tourist and business travel following the terrorist attacks against the United States in 2001 was further exacerbated by the SARS epidemic in much of Asia in 2002 and 2003. Backed by the Kuok Group's deep pockets, Shangri-La nonetheless continued its ambitious development program, led by the desire of Robert Kuok, then in his 70s, to see Shangri-La build its portfolio to more than 100 hotels in his lifetime.

China remained central to Shangri-La's growth plans. In 2005, for example, the company announced that it planned to build 15 new hotels in that country before 2010. At the same time, Shangri-La, by then the largest luxury hotel operator based in the Asian region, had set its sights on building a global brand, announcing plans to enter Europe and North America during the decade as well. In February 2005, the company announced its first European property, a 30-year lease contract for a hotel in the London Bridge Tower development, scheduled for completion in 2009. The company also announced its interest in establishing hotels in Paris, Frankfurt, and other European cities. Meanwhile, the company was scouting out properties in the United States, targeting at least one property in that country by the end of 2005.

Principal Subsidiaries

Edsa Shangri-La Hotel & Resort, Inc. (Philippines); Fiji Mocambo Limited; Kerry Industrial Company Limited; Mactan Shangri-La Hotel & Resort, Inc. (Philippines); Makati Shangri-La Hotel & Resort, Inc. (Philippines); Shangri-La Asia Treasury Limited; Shangri-La Finance Limited; Shangri-La Hotel (Baotou) Co., Ltd.; Shangri-La Hotel (Chengdu) Co., Ltd.; Shangri-La Hotel (Guangzhou Pazhou) Co., Ltd.; Shangri-La Hotel (Guilin) Co., Ltd.; Shangri-La Hotel (Huhhot) Co., Ltd.; Shangri-La Hotel (Ningbo) Co., Ltd.; Shangri-La Hotel (Shenzhen Futian) Co., Ltd.; Shangri-La Hotel (Wenzhou) Co., Ltd.; Shangri-La Hotel (Xian) Co., Ltd.; Shangri-La Hotel Limited (Singapore); Shangri-La Hotel Management Consultancy (Shanghai) Co., Ltd.; Shangri-La Hotel Public Company Limited (Thailand); Shangri-La Hotels (Malaysia) Berhad; Shangri-La International Hotel Management B.V. (The Netherlands); Shangri-La International Hotel Management Limited (Hong Kong); SLIM International Limited (Cook Islands); Traders Yangon Company (Myanmar) Limited; Yanuca Island Limited (Fiji).

Principal Competitors

Three Cities Group; Nicon Hotels Ltd.; Mingly Corporation Limited; Tokyu Corporation; Mitsui Fudosan Company Ltd.; Beijing Jingxi Tourism Development; Sapporo Holdings Ltd.; The Hongkong and Shanghai Hotels, Limited; Mandarin Oriental International Limited; New World Development Company Limited.