Business Idea: An array of online enterprises, from advertising to gift certificates
Back in 1994, at the ripe old age of 9, Johnson launched his first business out of his home in Virginia–making invitations for his parents’ holiday party. Word of his skills spread, and by the seasoned age of 11, Johnson had saved up several thousand dollars selling greeting cards. He called his company Cheers and Tears.
But the little guy didn’t stop there. At age 12, Johnson offered his younger sister $100 for her collection of 30 Ty Beanie Babies, all the rage at the time. The young entrepreneur quickly earned 10 times that amount by selling the dolls on eBay . Smelling potential, he contacted Ty and began purchasing the dolls at wholesale with the aim of selling them on eBay and on his Cheers and Tears Web site.
In less than a year, Johnson banked $50,000–seed money for his next venture, My EZ Mail, a service that forwards e-mails to a particular account without revealing the recipient’s personal information. He hired a programmer to flesh out his idea, and within two years My EZ Mail was generating up to $3,000 per month in advertising revenue.
Johnson still wasn’t done. In 1997, he joined forces with two other teen entrepreneurs to create an online advertising company called Surfingprizes.com, which provided scrolling advertisements across the top of users’ Web browsers. Those who downloaded the software received 20 cents per hour (a tiny fraction of the value to the advertiser) for the inconvenience of having ads splay across their computer screens.
The boys employed a classic pyramid strategy to spread the service: Users who managed to refer Surfingprizes.com to a new customer would nab 10% of that new person’s hourly revenue.
But Johnson and company didn’t just want to sell software–they wanted a piece of that juicy ad revenue too. Their solution: partnering with such companies as DoubleClick, L90 and Advertising.com, which could sell the ads for them. Under the agreements, these middlemen would collect 30% of any ad revenue sold, while the three boys split the remaining 70% (less those referral fees).
“I was 15 years old and receiving checks between $300,000 and $400,000 per month,” says Johnson. At 19, he sold the company name and software (but not the customer database) to an undisclosed buyer. Says Johnson, “Before my high school graduation, my combined assets were worth more than $1 million.”
After spending less than one semester as a freshman at Virginia Polytechnic Institute, Johnson caught the business bug again. With a pile of unwanted gift certificates, he and friend Nat Turner launched a business called Certificateswap.com. Their strategy: lower prices. While gift certificates routinely changed hands on eBay, the auctioneer charged a healthy fee–”up to 13% of the cards’ value,” says Johnson. “We took only 7.5%.” Johnson and Turner sold CertificateSwap.com in 2004, when Johnson was just 19, for an undisclosed “six-figure” amount.
Now just 24, Johnson spends his time lecturing on entrepreneurship and making television appearances as a finalist on ABC’s Oprah’s Big Give and as the host of BBC’s Beat The Boss. He’ll also be serving as a business expert on a new Animal Planet series beginning in May. “Put yourself out there,” he advises. “Don’t be afraid of rejection. Don’t be afraid to ask anything.”
Adam Hildreth (born 25 March 1985 in Leeds, West Yorkshire, England) setup his first company, Dubit Limited when he was 14.Dubit Limited went onto become one of the biggest teenage websites in the UK and now markets itself as a 'Youth Marketing Agency', advising major brands on how to market their products to young people.
Hildreth's latest venture is Crisp Thinking, which develops online child protection technology. The company claims to work closely with both Internet Service Providers and child protection organisations to develop solutions that protect children and teenagers from 'online grooming'.
He was reportedly worth £2m in the 2004 UK top 20 richest teens list and the current (2008) Sunday Times Rich List ranks Hildreth as 23rd in the 100 richest young people in the UK based on a valuation of £25m. In a study of British Millionaires of the Future Adam was predicted to be worth £40m by the year 2020. Hildreth was named the CBI's Young Entrepreneur of the Year at the end of 2006, which was awarded to him by Duncan Bannatyne and Peter Jones from BBC's Dragons' Den programme.
Fraser Doherty, now 24, set up SuperJam at 14, using his Gran's jam
recipes. After selling his produce at farmers' markets and to
delicatessens, he developed a method of producing jam 100% from fruit.
After setting up production, creating a brand and perfecting his recipes,
Fraser became the youngest ever supplier to a major supermarket chain
when Waitrose launched the range in March 2007. SuperJam now supplies
over 2,000 supermarkets around the world (incl. Tesco, Asda Wal-Mart,
Morrisons, Sainsbury's, Waitrose) in countries including Australia, Russia,
Denmark, Finland and Ireland.
SuperJam is exhibited in the National Museum of Scotland as an 'Iconic
Scottish Brand', alongside Irn Bru, Tunnock's and Baxters and Fraser was
named 'Global Student Entrepreneur of The Year', the first ever winner
from outside North America, one of over twenty awards that the company
has received. Gordon Brown, the UK Prime Minister, commended Fraser
over dinner at Downing Street, after hearing about his amazing story.
In August 2010, Fraser launched The SuperJam Cookbook, sharing his jammaking
secrets with the world. In April 2011, he launched SuperBusiness;
a book about his story and everything he has learned. Both books have
since become best sellers, on sale at Waterstones, WHSmith and in
supermarkets.
The company invests in running 'SuperJam Tea Parties' for elderly people
who live alone, in care homes or in sheltered housing. SuperJam has hosted
over 125 events across the UK, with live music, dancing and, of course,
scones and SuperJam. Up to 600 guests attend each of these events and
they are growing in popularity every month.
Fraser has also been `Entrepreneur in Residence' at London Metropolitan
University since 2010, delivering lectures and speeches on entrepreneurship.
he is also rich with awards having
Enterprising Young Brit Award (2004)
The Independent's `Top 40 Children' (2005)
Outstanding Young Person of The World Award (2007)
Biggart Baillie Innovation Award (2007)
Young Entrepreneur of The Year (2007)
Supernova's Brightest Young Business (2007)
Global Student Entrepreneur of The Year (2007)
`Top 10' in The Observer's `Future 500' (2007)
Shortlisted for ITV's `Britain's Best' Awards (2008)
John Logie Baird Innovation Award (2008)
Glenfiddich Spirit of Scotland Award (2008)
Top 10 in Courvoisier Future 500 Network (2008)
BT Essence of The Entrepreneur Award (2009)
Ernst&Young Entrepreneur of The Year finalist (2009)
Nectar Business Entrepreneur of The Year (2009)
Bighearted Scotland Business Person of The Year (2009)
HSBC Start-up Stars Finalist (2009)
Smarta 100 Award (2010)
Inc Magazine 30 under 30 Award (2010)
Top 10 in `Times Young Power List' (2011)
NatWest Enterprise Awards Finalist (2012)
Ben & Jerry's 'Join our Core' Finalist (2012)
17-year-old Nick D'Aloisio hit the headlines by selling his app, Summly, to Yahoo for an estimated £18m. Here's a step-by-step guide to your own hi-tech fortune
Nick D'Aloisio, inventor of the news app Summly. Photograph: Suzanne Plunkett/REUTERS
You have an idea for an app? Of course you do. Everyone has an idea for an app. Even my mum does, despite not having fully mastered the difference between a click and a double-click yet. So if you want to make a fortune with it, like 17-year-old Nick D'Aloisio has by selling his app Summly to Yahoo for an estimated £18m, what next?
Step one: the idea
This bit's really important: you need to work out very quickly whether or not your idea is rubbish. Find out if it already exists. Be very clear about who will use your app, other than you – ask people if they would find it useful. Generally speaking, successful apps are either a) really fun, like Angry Birds, or b) solve a problem, like Summly, which makes mobile-friendly summaries of news stories. If your app does neither, be concerned.
Step two: the spec
Speak to someone who has built an app before, or knows how the process works. You need to quickly understand how easy your app is to make. If it involves complex 3D-augmented reality scratch'n'sniff (or similar), you're entering a world of pain, and will probably have to mortgage your children to even get a working demo together. If, however, it's relatively simple, you're on the right path. Proceed.
Step three: the money
Most startups kick off with "friends and family" funding – a mini pot of cash raised in return for small equity. If you can spin a good yarn and a shiny video, a Kickstarter campaign might help you to raise funds. Many hopefuls think cutting a developer into the company will solve all of their cash problems, but they forget a very simple rule: 10% of a thing that doesn't exist yet is worth precisely zero. As for big money, it's almost unheard of for bona fide investors – venture capitalists or "angel" funders – to invest in anything before, at the very least, seeing a proof of concept.
Step four: the build
This is the really tricky bit. Generations of rubbish IT teaching in the UK has created a skills vortex: developers – the computer engineers who actually make the apps – are in short supply and huge demand, and can comfortably charge up to a £1,000 a day for their work. And you need a specific type of developer: one who knows Objective-C, the default programming language for iOS (Apple's operating system), or Java, the language-of-choice for Android apps.
The alternative, increasingly popular route is to make it yourself. A growing range of online and real-world code academies can teach you: look up General Assembly, Steer, or Code Academy. This option has a distinct edge: if your app fails, which it probably will, you'll still have the skills to make your next one.
Step five: the marketing
If possible, be 17 years old. This helps to create attention-grabbing headlines, such as: "The new Mark Zuckerberg", "Wunderkind Geek", and "Teenage Prodigy". Failing that the usual tricks pay off: bombarding the press and Twitter, teaser videos explaining how your app will change the world, incentivising sign up. But ultimately, the success of your app will fall back to the first principles: whether or not it's fun or useful.
Betting against U.S. government debtthis year is turning out to be a fool’s errand. Just ask Wall Street’s biggest bond dealers.
While the losses that their economists predicted have yet to materialize,JPMorgan Chase & Co. (JPM),Citigroup Inc. (C) and the 20 other firms that trade with the Federal Reserve began wagering on a Treasuries selloff last month for the first time since 2011. The strategy was upended as Fed Chair Janet Yellensignaled she wasn’t in a rush to liftinterest rates, two weeks after suggesting the opposite at the bank’s March 19 meeting.
The surprising resilience of Treasuries has investors re-calibrating forecasts for higher borrowing costs as lackluster job growth and emerging-market turmoil push yields toward 2014 lows. That’s also made the business of trading bonds, once more predictable for dealers when the Fed was buying trillions of dollars of debt to spur the economy, less profitable as new rules limit the risks they can take with their own money.
“You have an uncertain Fed, an uncertain direction of the economy and you’ve got rates moving,” Mark MacQueen, a partner at Sage Advisory Services Ltd., which oversees $10 billion, said by telephone from Austin, Texas. In the past, “calling the direction of the market and what you should be doing in it was a lot easier than it is today, particularly for the dealers.”
Treasuries (USGG10YR) have confounded economists who predicted 10-year yields would approach 3.4 percent by year-end as a strengthening economy prompts the Fed to scale back its unprecedented bond buying. After surging to a 29-month high of 3.05 percent at the start of the year, yields on the 10-year note have declined and were at 2.69 percent today.
Caught Short
One reason yields have fallen is the U.S. labor market, which has yet to show consistent improvement.
The world’s largest economy added fewer jobs on average in the first three months of the year than in the same period in the prior two years, data compiled by Bloomberg show. At the same time, a slowdown in China and tensions between Russia and Ukraine boosted demand for the safest assets.
Wall Street firms known as primary dealers are getting caught short betting against Treasuries. They collectively amassed $5.2 billion of wagers in March that would profit if Treasuries fell, the first time they had net short positions on government debt since September 2011, the data show.
While the wager initially paid off after Yellen said on March 19 that the Fed may lift its benchmark rate six months after it stops buying bonds, Treasuries have since rallied as her subsequent comments strengthened the view that policy makers will keep borrowing costs low to support growth.
‘Considerable Slack’
On March 31, Yellen highlighted inconsistencies in job data and said “considerable slack” in labor markets showed the Fed’s accommodative policies will be needed for “some time.”
Then, in her first major speech on her policy framework as Fed chair on April 16, Yellen said it will take at least two years for the U.S. economy to meet the Fed’s goals, which determine how quickly the central bank raises rates.
After declining as much as 0.6 percent following Yellen’s March 19 comments, Treasuries have recouped all their losses, index data compiled by Bank of America Merrill Lynch show.
“We had that big selloff and the dealers got short then, and then we turned around and the Fed says, ‘Whoa, whoa, whoa: it’s lower for longer again,’” MacQueen said in an April 15 telephone interview. “The dealers are really worried here. You get really punished if you take a lot of risk.”
Economists and strategists around Wall Street are still anticipating that Treasuries will underperform as yields increase, data compiled by Bloomberg show.
Yield Forecasts
While they’ve ratcheted down their forecasts this year, they predict 10-year yields will increase to 3.36 percent by the end of December. That’s more than 0.6 percentage point higher than where yields are today.
“My forecast is 4 percent,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG, a primary dealer. “It may seem like it’s really aggressive but it’s really not.”
LaVorgna, who has the highest estimate among the 66 responses in a Bloomberg survey, said stronger economic data will likely cause investors to sell Treasuries as they anticipate a rate increase from the Fed.
The U.S. economy will expand 2.7 percent this year from 1.9 percent in 2013, estimates compiled by Bloomberg show. Growth will accelerate 3 percent next year, which would be the fastest in a decade, based on those forecasts.
History Lesson
Dealers used to rely on Treasuries to act as a hedge against their holdings of other types of debt, such as corporate bonds and mortgages. That changed after the credit crisis caused the failure of Lehman Brothers Holdings Inc. in 2008.
“Being a dealer has changed over the years, and not least because you also have new balance-sheet constraints that you didn’t have before,” Ira Jersey, an interest-rate strategist at primary dealer Credit Suisse Group AG (CSGN), said in a telephone interview on April 14.
While the Fed’s decision to inundate the U.S. economy with more than $3 trillion of cheap money since 2008 by buying Treasuries and mortgaged-backed bonds bolstered profits as all fixed-income assets rallied, yields are now so low that banks are struggling to make money trading government bonds.
Yields on 10-year notes have remained below 3 percent since January, data compiled by Bloomberg show. In two decades before the credit crisis, average yields topped 6 percent.
Almost Guaranteed
Average daily trading has also dropped to $551.3 billion in March from an average $570.2 billion in 2007, even as the outstanding amount of Treasuries has more than doubled since the financial crisis, according data from the Securities Industry and Financial Markets Association.
“During the crisis, the Fed went to great pains to save primary dealers,” Christopher Whalen, banker and author of “Inflated: How Money and Debt Built the American Dream,” said in a telephone interview. “Now, because of quantitative easing and other dynamics in the market, it’s not just treacherous, it’s almost a guaranteed loss.”
The biggest dealers are seeing their earnings suffer. In the first quarter, five of the six biggest Wall Street firms reported declines in fixed-income trading revenue.
JPMorgan, the biggest U.S. bond underwriter, had a 21 percent decrease from its fixed-income trading business, more than estimates from Moshe Orenbuch, an analyst at Credit Suisse, and Matt Burnell of Wells Fargo & Co.
Trading Revenue
Citigroup, whose bond-trading results marred the New York-based bank’s two prior quarterly earnings, reported a 18 percent decrease in revenue from that business. Credit Suisse, the second-largest Swiss bank, had a 25 percent drop as income from rates and emerging-markets businesses fell. Declines in debt-trading last year prompted the Zurich-based firm to cut more than 100 fixed-income jobs in London and New York.
Chief Financial Officer David Mathers said in a Feb. 6 call that Credit Suisse has “reduced the capital in this business materially and we’re obviously increasing our electronic trading operations in this area.” Jamie Dimon, chief executive officer at JPMorgan, also emphasized the decreased role of humans in the rates-trading business on an April 11 call as the New York-based bank seeks to cut costs.
About 49 percent of U.S. government-debt trading was executed electronically last year, from 31 percent in 2012, a Greenwich Associates survey of institutional money managers showed. That may ultimately lead banks to combine their rates businesses or scale back their roles as primary dealers as firms get squeezed, said Krishna Memani, the New York-based chief investment officer of OppenheimerFunds Inc., which oversees $79.1 billion in fixed-income assets.
“If capital requirements were not as onerous as they are now, maybe they could have found a way of making it work, but they aren’t as such,” he said in a telephone interview.
Twenty years ago, Chen Feng used to push the refreshment trolley up and down the aisle of the lone Boeing 737 that comprised his startup airline.
Today, based on the tropical Chinese island of Hainan, he controls a fleet of 483 planes -- and has a jet of his own, a Gulfstream G550, Bloomberg Markets magazine will report in its May issue. Even so, Chen, a devout Buddhist, says he’s far from the stereotypical Chinese tycoon.
“I live a simple life,” he says.
As he sips a caffe latte in the lounge of the chaletlike Sheraton Davos Waldhuus Hotel in Davos, Switzerland, his words jar with the setting: At January’s World Economic Forum, he’s surrounded by other corporate titans.
“I don’t drink, smoke, have banquets, go to karaoke or get massages,” he says. “I’m different from the other entrepreneurs in China.”
Where Chen, 60, is more like them is in his vaulting global ambition. In 1995, Chen flew to New York and persuaded George Soros to invest $25 million in his fledgling Hainan Airlines Co. Since then, backed by the Soros imprimatur, he has ridden the boom that transformed balmy, coconut palm–fringed Hainan, 2,500 kilometers (1,550 miles) south of Beijing, from a backwater into a billionaires’ playground reminiscent of a Chinese Hawaii or Riviera.
$58 Billion Empire
From his Buddha-shaped, 31-story headquarters in Hainan’s increasingly high-rise capital, Haikou, Chen now chairs HNA Group Co., a closely held global transportation, logistics, retail, property, tourism and financial services empire that reported revenue of $17.5 billion and pretax profits of $837 million for 2012.
Among its $58 billion worth of assets: a New York office tower, a Spanish hotel group, a French airline and controlling stakes in 10 companies listed on mainland Chinese and Hong Kong exchanges.
“Chen’s smart, brave and a gambler,” says Albert Louie, founder of Hong Kong–based consulting firm A. Louie Associates Ltd., who advises foreign investors in China. “He’s also politically well connected, and unlike China’s Internet entrepreneurs, he isn’t in industries that the government might consider threatening to Communist Party control.”
Chen has spent more than $3 billion on foreign acquisitions in the past six years alone. His biggest bet was the $1.05 billion purchase in 2011 of GE SeaCo, the world’s fifth-biggest container-leasing company, from General Electric Co
Twenty years ago, Chen Feng used to push the refreshment trolley up and down the aisle of the lone Boeing 737 that comprised his startup airline.
Today, based on the tropical Chinese island of Hainan, he controls a fleet of 483 planes -- and has a jet of his own, a Gulfstream G550, Bloomberg Markets magazine will report in its May issue. Even so, Chen, a devout Buddhist, says he’s far from the stereotypical Chinese tycoon.
“I live a simple life,” he says.
As he sips a caffe latte in the lounge of the chaletlike Sheraton Davos Waldhuus Hotel in Davos, Switzerland, his words jar with the setting: At January’s World Economic Forum, he’s surrounded by other corporate titans.
“I don’t drink, smoke, have banquets, go to karaoke or get massages,” he says. “I’m different from the other entrepreneurs in China.”
Where Chen, 60, is more like them is in his vaulting global ambition. In 1995, Chen flew to New York and persuaded George Soros to invest $25 million in his fledgling Hainan Airlines Co. Since then, backed by the Soros imprimatur, he has ridden the boom that transformed balmy, coconut palm–fringed Hainan, 2,500 kilometers (1,550 miles) south of Beijing, from a backwater into a billionaires’ playground reminiscent of a Chinese Hawaii or Riviera.
$58 Billion Empire
From his Buddha-shaped, 31-story headquarters in Hainan’s increasingly high-rise capital, Haikou, Chen now chairs HNA Group Co., a closely held global transportation, logistics, retail, property, tourism and financial services empire that reported revenue of $17.5 billion and pretax profits of $837 million for 2012.
Among its $58 billion worth of assets: a New York office tower, a Spanish hotel group, a French airline and controlling stakes in 10 companies listed on mainland Chinese and Hong Kong exchanges.
“Chen’s smart, brave and a gambler,” says Albert Louie, founder of Hong Kong–based consulting firm A. Louie Associates Ltd., who advises foreign investors in China. “He’s also politically well connected, and unlike China’s Internet entrepreneurs, he isn’t in industries that the government might consider threatening to Communist Party control.”
Chen has spent more than $3 billion on foreign acquisitions in the past six years alone. His biggest bet was the $1.05 billion purchase in 2011 of GE SeaCo, the world’s fifth-biggest container-leasing company, from General Electric Co.
‘World-Class Companies’
Such deals would make HNA Group, if publicly traded, one of the world’s top 250 companies by assets, according to data compiled by Bloomberg.
The founder, though, has much loftier goals.
“By 2020, we can become one of the top 100 companies, and by 2030, we want to be one of the top 50,” Chen says. “Assets are still cheap in the U.S. and Europe, and we will continue to acquire them. We need a batch of world-class companies to emerge from China to help the country’s growth, and HNA will be one of those. We want to be everywhere.”
That’s a familiar refrain among China’s entrepreneurs.
Since the global financial crisis ravaged the rest of the world in 2008, Chinese companies have made about $360 billion worth of foreign acquisitions, according to Bloomberg.
Next Deal
And, increasingly, private businessmen such as Chen are replacing state-owned enterprises as leaders of China Inc.’s global push, says Thilo Haneman, head of the cross-border practice at New York–based research firm Rhodium Group LLC.
“What’s going on is remarkable,” Haneman says. “It’s similar to what we saw from Japan 20 years ago.”
Chen shouldn’t be short of cash for his next deal. At the end of 2012, HNA had $60 billion in credit lines from Chinese banks, according to its latest financial statements.
Chen says he plans to raise additional capital by selling shares in several HNA units that are unlisted. In coming months, Chen says, he will announce the initial public offering of Hong Kong Airlines Ltd., the second-biggest carrier in the former British colony.
He acquired the airline in 2006. The listing may raise about $1 billion later this year, according to a person with knowledge of the plan.
For now, the jewel in HNA’s crown remains Shanghai-listed Hainan Airlines, Chen’s biggest public company, with a market value of $3.6 billion as of yesterday. Together with five smaller affiliate airlines, it has a 15 percent share in the China market, according to the Sydney-basedCAPA Centre for Aviation.
Market Share
Only the so-called Big Three state-owned carriers -- Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. -- have larger shares in the world’s second-largest aviation market after the U.S.
Hainan Airlines’ 23 international destinations include Chicago, Seattle and Toronto. Later this year, Chen will add a Boston service using Boeing 787 Dreamliners.
That shows his determination to gain market share on China–North America routes now dominated by Air China and United Continental Holdings Inc., says Will Horton, a Hong Kong–based CAPA analyst.
“Hainan is leaner and more internationally minded than the Big Three,” Horton says. “It can become a serious player to North America.”
Crash-Free Record
The airline’s key selling points include a crash-free record; doting, glamorously garbed flight attendants; and flat-bed business-class seats that made it the first Chinese airline to win five stars from London-based rating agency Skytrax.
“Hainan is one of my favorite airlines,” says Allan Zeman, 65, a director of Las Vegas–based Wynn Resorts Ltd., whose private company, Lan Kwai Fong Holdings Ltd., has investments across China. “The first-class service is excellent, and the airplanes are relatively new.”
Many of Chen’s shareholders have had a less enjoyable ride. Since 2009, the Shanghai Stock Exchange Composite Index has been the eighth-worst performer out of 93 tracked by Bloomberg. And in the 12 months ended yesterday, Hainan Airlines’ shares have declined 17 percent compared with the index’s 4 percent tumble.
Share Swap
Two of Chen’s other seven companies listed in Shanghai and Shenzhen have also fallen. In contrast, the unit into which Chen injected his GE SeaCo acquisition, Bohai Leasing Co., has jumped 28 percent over the same period. In Hong Kong, shares in Hainan Meilan International Airport Co. -- owner of Haikou’s airport -- have risen 17 percent, mirroring the increase in the Hang Seng Index.
Chen’s most famous backer, Soros, is one investor showing a paper profit, according to data compiled by Bloomberg.
In 2005, Soros doubled his bet on Hainan Airlines to $50 million. As of yesterday, following a share swap, he owned 10 percent of an unlisted HNA unit, Grand China Air, which in turn owned30 percent of Hainan Airlines.
As of yesterday, that holding, equivalent to 3 percent of the carrier, was worth about $110 million. Soros, through a spokesman, Michael Vachon, declined to comment.
Even as he launches more public companies, Chen continues to control his empire through an unlisted holding company that isn’t required to disclose its complete balance sheet or the identities of its main shareholders.
One key item HNA does not release is its net profit. Chen says that last year he and six other directors, who between them owned almost all of the stock, donated 20 percent of HNA’s shares, worth $1.4 billion, to what he describes as a private-equity fund for charity.
‘My Idol’
The fund, named Ci Hang after a Chinese goddess, is HNA’s largest shareholder, he says. He says he ranks as the joint second-biggest shareholder, although he declines to reveal the size of his personal holding, making it impossible to determine how rich he is. Given Chen’s calculation of the value of the donation, HNA is worth $7 billion.
“Chen Feng is my idol, but I don’t understand his company’s structure -- none of us can understand,” says Wang Dafu, 48, a Cohiba cigar–chomping property developer worth $1.2 billion as of yesterday, according to the Bloomberg Billionaires Index. Wang heads Visun Group and serves as Chen’s deputy chairman at the Hainan Federation of Industry and Commerce.
Although Chen is under no obligation to disclose more than he has about the workings of his private company, investors in Hong Kong Airlines’ IPO should expect HNA’s ownership to be more transparent, says Ronald Wan, who helps manage $200 million at Hong Kong–based Asian Capital Holdings Ltd.
Cultural Revolution
“Hainan Airlines has a competitive edge, and people always talk about the Soros investment,” Wan says. “But when you invest in Chinese companies, you have to be clear about the shareholding.”
Chen talks freely about how he navigated some of the most turbulent years in China’s recent history. Raised in Beijing as the son of middle-ranking Communist Party officials, Chen was forced to leave school in his early teens after the Cultural Revolution broke out in 1966.
Unlike most young people who were ordered to labor in the fields, Chen was sent to work for the People’s Liberation Army Air Force in the Western province of Sichuan. When the turmoil ended in 1976, Chen parlayed that experience into a job in Beijing with the Civil Aviation Administration of China.
In 1984, he won a scholarship -- one of only 20 offered in China, he says -- to study at an air-transportation school in Germany run by Deutsche Lufthansa AG.
In 1989, he took a job at the World Bank’s loan office in Haikou. The following year, Hainan’s administration hired him to launch its first airline. Given just $1.4 million in government seed money, Chen raised a further $41 million from local investors before successfully wooing Soros.
For the U.S. billionaire, $25 million was small change. For Chen, it meant much more.
“Soros’ reputation helped our image,” he says.
Perhaps even more helpful has been the surging development of Hainan, China’s smallest province, with a population of 9 million. In the past five years, the island’s economy has averaged 11.7 percent annual growth, compared with the national figure of 9.2 percent.
Today, around the resort of Sanya, centuries-old fishing villages have been replaced by marinas packed with megayachts. Luxury hotels line its sandy beaches, including what Marriott International Inc. says is its most profitable Ritz-Carlton–branded property.
“Hainan was an absolute dump,” says Peter Churchouse, chairman of Hong Kong–based property investor Portwood Capital Ltd. “The word phenomenal would not overstate the extent of the change.”
Rival Carriers
Nobody has been better placed to exploit that change than Chen. Last year, the number of visitors to Hainan jumped 11 percent to 37 million. And of those arriving by air, 44 percent flew in on his planes, HNA says.
Chen even profited from those who traveled on rival carriers because he owns both of Hainan’s airports, as well as hotels and travel agencies in the province. HNA is also the biggest property developer in Haikou.
“It’s impossible to visit Hainan and not put a yuan in Chen’s pocket,” consultant Louie says.
In 2006, having already expanded across mainland China, Chen turned to Hong Kong, acquiring, for an undisclosed price, Hong Kong Airlines and a second carrier, Hong Kong Express Airways Ltd., which he subsequently rebranded as a low-cost airline.
Chen’s Bets
In 2011 and 2012 came a flurry of Western acquisitions, including GE SeaCo. HNA paid $259 million for a foreclosure-threatened Manhattan office tower, 1180 Sixth Ave., and $126 million for Cassa Hotel New York near Rockefeller Center.
He bought 24 percent of Spain’s biggest business hotel chain, NH Hoteles SA, for 286.6 million euros ($397.6 million) and 48 percent of France’s No. 2 airline, Aigle Azur Transports Aeriens SAS, for 51.8 million euros.
Not all of Chen’s bets have been winners. In 2012, Hong Kong Airlines abandoned an all-business-class service between Hong Kong and London as corporate travel slowed.
Expansion into shipping coincided with a collapse in freight rates. Last year, an HNA-owned cruise liner carrying 2,300 passengers and crew was detained in South Korea, after another Chinese company obtained a court order over $58 million it said it was owed for unpaid charter fees and ship broker commissions. HNA, while denying liability, issued a public apology to stranded passengers.
Rigorously Private
Asked about the company’s financial strength, Chen says HNA’s debt-to-equity ratio declined to 0.79:1 in 2012 from 0.81:1 in 2009. “People don’t understand that our industry always has high debt levels,” he says.
Chen’s ambitions don’t end with making HNA a global top 50 company. He has another grand plan. Chen is rigorously private about his immediate family, except to say, “It’s not good for your children to have such wealth.”
Having already donated 20 percent of HNA shares to charity, Chen says he and his partners aim to make arrangements to do the same with the rest of their stock after their deaths.
Given that Chen values the remainder of HNA’s shares at $5.6 billion, his last deal could well be his biggest.
Charles and David Koch, the billionaire brothers who run Wichita, Kansas-based Koch Industries Inc., added $1.3 billion to their collective fortune yesterday on reports that U.S. industrial production gained more than forecast. The surge elevated their net worth to more than $100 billion, according to the Bloomberg Billionaires Index.
The Koch’s ascent comes as Freedom Partners, one of their fundraising networks, last week aired its first batch of television ads targeted at this year’s U.S. Senate races, including commercials knocking Democratic Senator Mark Udall of Colorado and Representative Bruce Braley of Iowa for supporting PresidentBarack Obama’s health-care law.
“The Koch brothers are pouring millions into this,” Chris Harris, a campaign spokesman for Senator Udall, said in an e-mail yesterday. “They’re only fighting for their own interests, not Coloradans’. Mark Udall has a long record of fighting for the middle class and stops at nothing to protectColorado’s special way of life.”
The ads represent an escalation in TV warfare among outside groups intervening in the Iowa and Colorado contests. In both cases, Americans for Prosperity, another Koch organization, criticized Democratic candidates for backing the health-care law.
‘Pocketing Money’
“These professional politicians claim to be standing up against health insurance companies while pocketing money from their political action committees and company executives,” James Davis, a spokesman for Arlington, Virgina-based Freedom Partners, said in an e-mail last week. “It’s hypocritical -- while health insurance companies stand to see massive financial gains from the health-care law, the rest of America is left paying the bill.”
Jeff Giertz, a spokesman for Braley’s campaign, said the Kochs and the GOP candidates they support stand behind policies that would hurt Iowa’s economy.
“Bruce Braley fights for Iowa’s working families because that’s where he comes from, and he’ll keep fighting for Iowa in the U.S. Senate,” Giertz said in an e-mail yesterday.
The Koch’s fortune is derived from their combined 84 percent stake in the second-largest closely held company in the U.S., which has annual sales of about $115 billion, according to Koch Industries’ website. They’re the fifth- and sixth-richest people in the world.
Buying Flint
Melissa Cohlmia, a spokeswoman for Koch Industries, confirmed the company’s revenue and declined to comment on the brothers’ net worth in an e-mail.
Their company agreed to buy printing-ink maker Flint Group Holdings Sarl for about 2 billion euros ($2.8 billion) last week. Flint, one of the world’s largest ink suppliers to the printing and packaging industry, is being bought with Goldman Sachs Group Inc. (GS)’s private-equity unit from CVC Capital Partners Ltd. The billionaires also own Atlanta-based Georgia-Pacific LLC, which makes Dixie cups, Brawny paper towels and Quilted Northern toilet tissue.
Elaine T. Marshall, 71, holds almost 15 percent of Koch Industries. She is the planet’s fifth-richest woman and has a net worth of $17.3 billion, according to the Bloomberg ranking. She gained control of the Koch stake following the death of her husband, E. Pierce Marshall, in 2006.
Bill Gates remains the world’s wealthiest person, controlling a $79.5 billion fortune. He is followed by Mexico’s Carlos Slim, who has a net worth of $67.1 billion, and Berkshire Hathaway Inc.’sWarren Buffett, whose wealth is valued at $64.5 billion.
