UNI-ASIA: Carves Niche in Alternate Asset Investments

This article, written by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange), originally was published in SGX's kopi-C: the Company brew series on 11 November 2016. The article is republished with permission.

Uni-Asia Holdings Group Chairman and CEO, Michio Tanamoto (NextInsight file photo) For Michio Tanamoto, a catastrophe often presents hidden opportunities. In 1997, the onset of the Asian financial crisis became a stepping stone for the veteran banker to establish Singapore-listed Uni-Asia Holdings Ltd, a structured finance arrangement and alternative assets investment firm. Nearly two decades ago, Hokkaido Takushoku Bank, which was overwhelmed by bad loans after the bursting of Japan's real estate bubble, decided to shutter its overseas operations. Tanamoto, who spent 17 years of his career with the bank, and was then the deputy general manager of its Singapore branch, found himself in a pickle. "I and three other colleagues decided to turn the situation to our advantage - we resigned from the bank to form a structured finance company providing syndicated loan facilities to clients in Taiwan, Hong Kong and China," the law graduate from Japan's Hitotsubashi University recalled. “The bank's failure became a negative example for us, and we wanted to ensure that the areas neglected by the bank - corporate governance, risk management and internal controls - would be our key priorities in running Uni-Asia.” - Michio Tanamoto Chairman and CEO Uni-Asia Holdings Ltd "With some Asian corporations - including Evergreen in Taiwan and Hopewell in Hong Kong - as our key shareholders, we began investing in Japanese properties and distressed assets, including non-performing loans from the Asian financial crisis." Uni-Asia was established in March 1997, and Hokkaido Takushoku Bank eventually went bankrupt in November that year. "The bank's failure became a negative example for us, and we wanted to ensure that the areas neglected by the bank - corporate governance, risk management and internal controls - would be our key priorities in running Uni-Asia," Tanamoto said. Uni-Asia, which listed on the Mainboard of Singapore Exchange in August 2007, performs a variety of roles, including asset manager, finance arranger, ship owner, property broker, hotel operator and fund manager. The company acquires assets at competitive prices, as well as manages and operates these assets to enhance their value and generate recurring income. Its four business segments are focused on ship owning and chartering, investment in and management of ships, ship finance and arrangement, investment in and management of properties in Japan, as well as hotel operations. These units generate five main income categories - charter income, fee income, investment returns, hotel income and interest income. Tanamoto was appointed Chairman and Chief Executive Officer of Uni-Asia Holdings in April 2014.

Unique Value Proposition

Between the financial years ended 31 December 2011 and 2015, Uni-Asia averaged total income of US$70.8 million and net income of US$3.2 million. As at 30 June 2016, its assets were valued at US$341.1 million, up from US$314.2 million at end-2015. The stock has a market capitalisation of about S$47 million, and a book value per share of US$2.94.

In September, Tanamoto and Chief Operating Officer Masaki Fukumori both increased their shareholding in the company. Fukumori's three purchases during the month amounted to over S$36,000, lifting his stake to 2.16% from 2.08%. Tanamoto spent about S$37,600 on two separate occasions to boost his shareholding to 2.21% from 2.14%.

"Our vision is to create unique offerings for our clients - we want to be a comprehensive provider of alternative asset investment opportunities and related services," Tanamoto said.

"So far, we're the only player in the market that invests in and provides integrated services for both ships and properties."

Through its shipping unit and joint-venture firms, Uni-Asia owns a portfolio of 20 vessels, comprising 15 bulk carriers, four containerships and one product tanker. With an average age of less than five years, these ships have a higher reliability and greater fuel efficiency. Another four vessels will be delivered from 2018 onwards.

"By purchasing through joint-investment companies, and with delivery from 2018 onwards, we can limit our capital outlay and are well-positioned to benefit from the industry's future recovery," he noted.

"Most of our acquisition costs are competitive, with breakeven levels that are below that of our peers. Even if the market rebounds slightly, it will flow through to our bottom line."

With about 70% of its assets in ships, Uni-Asia's fortunes are entwined with the shipping market. This industry, and in particular, the dry bulk segment, is in its worst shape in three decades.

But Tanamoto believes the sector could start bottoming out next year, although a large gap will continue to exist between demand and supply.

"According to Clarkson order book data, deliveries for bulk carriers in 2017 are expected to fall sharply - by about 50% from a year ago - and the increase in total tonnage continues to slow significantly," he added.

"While we won't see a full-fledged recovery for another few years, there should be some definite signs of improvement next year."

Failures & Challenges

Over in Hong Kong, Uni-Asia, as part of a consortium led by First Group Holdings Ltd, clinched its third commercial property project in July. This involves the construction of an office building scheduled for completion in 2019.

"We're focused on commercial projects in Hong Kong because of the limited supply of land for office buildings in the territory," Tanamoto said.

"Due to the Hong Kong government's tight control over supply, this segment of the market has been very stable, and such projects offer good capital appreciation, even though competition is extremely stiff."

Uni-Asia's 2nd property development in Hong Kong is a commercial office building at 650 Cheung Sha Wan Road that is expected to be completed by 2017.
(Artist's impression)

Looking back on the last 20 years, Tanamoto acknowledges Uni-Asia has made reasonable, even satisfactory progress. His passion, he says, is developing the business and rewarding clients and shareholders.

"My biggest worry is how to manoeuvre this market with all its challenges. We have a responsibility to staff and shareholders to run this business well, and these are some of the issues that weigh on my mind," he said.

Nevertheless, the 59-year-old, who enjoys golfing and reading historical non-fiction, remains steadfastly focused on taking Uni-Asia to the next level.

"People normally run from failures, but I prefer not to. We've not always been successful in our investment decisions, and I always remember the failures and mistakes of the past," said the father of a son, 24, and a daughter, 26, who are both studying in Tokyo.

"I think about how I might have done things differently, and I make sure I use those lessons and experiences to manage the next challenge or opportunity that arises."

Financial results

Source: Company data

Uni-Asia Holdings Ltd

Uni-Asia Holdings Ltd is an alternative investment company performing a variety of roles that include asset owner and manager, operator, co-investor, ship finance arranger, broker and fund manager. Its investments are focused on cargo vessels and properties in Hong Kong, Japan and China. To improve investment returns, Uni-Asia also provides integrated services for the invested assets, including acting as operator for commercial maritime vessels and invested properties, which are in commercial, residential and hotel segments. Listed on Singapore Exchange in 2007, Uni-Asia strives to achieve sustainable growth through a prudent approach. Their offices are located in Hong Kong, Singapore, Tokyo, Taiwan, China and South Korea.

The company website is: www.uni-asia.com

Click here for the company's StockFacts page.

For its third quarter results ended 30 Sep 2016, click here.