This article first appeared in Corporate, The Edge Malaysia Weekly, on May 23 - 29, 2016.

TAN Sri Lim Kok Thay calls himself a “convert” when it comes to luxury cruise holidays, but says he had ploughed hundreds of millions into the business even before he went on his first cruise with his wife, Cecilia.

Armed with the profits from turning loss-making Norwegian Cruise Line Holdings Ltd (NCL) into an entity worth US$15 billion within a decade, Lim has in the past year via Genting Hong Kong Ltd upped his investments in the cruise industry way past the billion-dollar mark.

Lim, who controls more than 50% of Genting Hong Kong Ltd, is willing to spend more on cruise ships and he is not alone.

The world’s top two cruise companies and Genting Hong Kong’s larger rivals — Carnival Cruise Line and Royal Caribbean Cruise — are already positioning themselves to capture the expected deluge of Chinese cruise takers. Industry experts say Chinese tourists are becoming increasingly attracted to the idea of enjoying entertainment and recreational services, delectable cuisine and gambling while cruising to different cities and countries.

In March last year, news got out that Carnival Corp, the world’s largest cruise ship group, would order nine new ships from Europe’s two biggest shipyards for delivery from 2019 to 2022. Four are from Germany’s Meyer Werft and five from Italy’s Fincantieri. Most of the ships are to be deployed in Europe or Asia-Pacific.

Royal Caribbean International — which has 25 ships, including the world’s six largest cruise ships (the largest being the 1,188ft, 227,000-tonne Harmony Of the Seas, which is worth £800 million and if stood on its stern, would be taller than the Eiffel Tower) — deployed its third US$1 billion quantum class, Ovation of the Seas, from Southampton, England, to Tianjin, China, on May 3. The liner will be based in Hong Kong in November.

Being the top Asian cruise operator, Lim is not about to allow Genting Hong Kong, which has been in the business for 23 years, to lose the race. Its SuperStar Virgo is the first international cruise ship to use China’s Shenzhen as its home port. The move followed the agreement between Genting Hong Kong and China Merchants Shekou Holdings to jointly develop Tai Zi Bay in Shekou into an international cruise port.

Lim knew he needed to move quickly. After being told of a 10-year wait for new ships, he acquired a stake in the Lloyd Werft shipyard in Bremerhaven, Germany, last September. In March this year, Genting Hong Kong completed its €230.6 million acquisition of Nordic Yard’s three shipyards in Wismar, Warnemunde and Stralsund in Germany, which will be merged under Lloyd Werft. On top of investing €100 million in upgrades, Genting Hong Kong on May 10 formally signed with Lloyd Werft a €3.5 billion order for 10 ships to be delivered from 2019 to 2022.

Genting Malaysia Bhd holds 16.87% of Genting Hong Kong. Genting Bhd owns 49.31% of Genting Malaysia and 52.89% of Genting Singapore Ltd.

“The advantage of having our own shipyard means we can be more creative in terms of building our ships. Yes, it would be a bit of a gamble, but I think if one can catch the right trend, which is possible if you were to look at what’s happening in the US or the European markets, one can have a fairly good idea where the trend of cruising is going … If we succeed, we will become the fourth yard [after Meyer Werft, Fincantieri and STX France] that can build modern cruise ships,” says Lim, who is chairman and CEO of Genting Group.

“We hope we will not stop at just 10 ships. Our team is very excited about the industry’s potential growth. If we do everything right, we will build more than the 10. We have three brands [Crystal Cruises, Dream Cruises and Star Cruises] for the very top end to the contemporary markets. We want to be the most innovative and a game changer with all these exciting new ships.”

“Hopefully, we can turn that €3.5 billion into €35 billion,” he adds. “When the new ships hit the water, and if we make the ships attractive to the market, you will see a multiplying effect.”

Will that multiplying happen within 10 years, just as it did at NCL?

“We say in 10 years’ time,” laughs Lim. “You can only hope, right? In business, there are always risks. What’s important is to do your homework well, which we have. We’ve been in the cruise business for 23 years now. Along the way, we’ve achieved success in NCL and that gives us a lot of comfort in what we are doing. As long as we know what we’re doing, I’m fairly comfortable that we will definitely not lose money for shareholders.”

Slated for delivery from 2019 to 2022, the two mega global class cruise ships for Star Cruises and eight vessels for Crystal Cruises — which Lim says will “redefine the Asian cruising experience” — will be ready by the time China hosts the 2022 Winter Olympics.

Incidentally, the Genting Secret Garden Ski Resort in Zhangjiakou city in Hebei province, about three hours’ drive from Beijing, is a venue for the Winter Olympics. Lim’s brother, Datuk Lim Chee Wah, is chairman of Genting Secret Garden, the flagship development of his VXL Group. VXL has an office on the 12th floor of the 25-storey Wisma Genting in Kuala Lumpur and one on Canton Road in Tsimshatsui, Hong Kong, according to data on its website. Genting Hong Kong also has an office on Canton Road.

According to Lim, the Genting name “can sometimes be too synonymous with gambling”. The group was not warmly received when it first ventured into China but is now gaining acceptance. “Initially, the Chinese were a bit wary of Genting as a brand. As time went by and we showed, not just through words but our actions, that we are really also an investor in the cruise business, hospitality business ... and of our diversified businesses; gambling is only one part. We are not a one-business company. Once the Chinese understood that, the name became a lot more acceptable,” Lim explains, relating the wider Genting Group’s investment in the ski resort north of Beijing and promotion of winter sports in the country, which is in line with the Chinese leadership’s thinking.

“Now, we’re working very hard towards 2022, where Genting Resort will be part of the Winter Olympics,” adds Lim.

But well before that, Genting’s newly established Dream Cruises will make its debut with two ships: Genting Dream (homeport is Guangzhou, China) will set sail this November and World Dream will do so next November. They are being built by Meyer Werft at US$960 million each. Genting Hong Kong currently has six ships under Star Cruises and three under Crystal Cruises, on which the group spent US$550 million to acquire in May last year.

In China and the rest of Asia, the premium segment will be marketed under Dream Cruises, says Lim, who is confident that “convenience and value for money” will win the group more customers, especially if the right experiences are offered.

“There are people who have taken 300 cruises,” says Lim, relating how Crystal Cruises is so popular that cruises are sold out 18 months in advance. 

“I might not get [a suite] if I wanted one … wait … I think I know someone who can [get me one],” he laughs.

“With new ships, we will be able to offer new itineraries and products … for the very top end to the contemporary markets. That in itself will expand the market, which is still under-served,” Lim says, referring to the prevailing sub 0.05% Asia-Pacific cruise market penetration rate. This is despite the doubling of cruise takers in Asia to over 1.4 million in 2014 from 775,000 in 2012.

Chinese cruise takers are expected to reach 4.5 million by 2020, from 700,000 in 2014 and about a million last year. By 2030, the figure would be between 8 million and 10 million, Genting officials say, citing the Shanghai International Shipping Institute’s (SISI) China Shipping Development Outlook Report. By comparison, there are more than 12 million North American cruise takers today.

To be built at its own Lloyds Werft shipyard, four Crystal river ships scheduled for delivery in 2017 for the European market will feature spacious guest suites with walk-in wardrobes, king-sized beds, a balcony and bathrooms with double vanities. These will be followed by the first purpose-built polar class expedition mega yacht, Crystal Endeavor, which will be delivered in 2018. The ships will be financed mainly through project financing, with Genting Hong Kong putting in as little equity as possible.

As it is, Lim estimates that the cruise business accounts for about 10% of the group’s total business but should be among the fastest-growing segments in the coming years.

Still, Lim admits that cruising, while potentially propitious, “may not necessarily be more profitable” than the core business — gaming — which he reckons still accounts for over 60% of group revenue. “The aim is to try and get it down to 50%. It was much higher before.”

That’s not to say Genting is distancing itself from gaming, even as governments around the world become more hawkish in approving new gaming licences. “Gaming still remains highly profitable and allows us to look at other businesses that would hopefully be future core businesses for the group,” Lim says.

Instead of enjoying the cash from NCL, it is clear that Lim has chosen to venture further away from the highly regulated and licence-dependent casino gaming business on which his family’s wealth was built. “Sure, we can do nothing and sit on our success. But the only permanence is change. I cannot expect gaming to remain profitable forever.”

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