Ep76: Azran Osman-Rani – From Zero to a Billion Dollar IPO

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Guest profile

BIO: Azran Osman-Rani is the founding CEO of Naluri, a digital health technology company. He previously pioneered the long-haul, low-cost airline model as the founding CEO of Air Asia X.

STORY: Azran took a huge loan to buy extra shares in Air Asia X after a successful IPO. However, three airline disasters caused the shares to tank, leaving him with a seven-digit net cash loss.

LEARNING: Be very wary of what banks or investment bankers tell you or advise you to do. Have a backup plan or alternative way to survive or recover from loss. Value is created through products and services.

 

“I ended up with a seven-digit net-cash loss … and eventually had to part company with the board in that journey. So it was a very, very tough and painful, financial ending … But you know, I learned an invaluable amount from that experience, and I wouldn’t have traded it for anything.”

Azran Osman-Rani

 

Guest profile

Azran Osman-Rani is the founding CEO of Naluri, a digital health technology company that provides a cost-effective and accessible digital health psychology service to help users adopt healthier lifestyle behavior changes. He is active in the internet technology space and is a co-founder, investor, and advisor to iflix, MoneyMatch, Cognifyx, and Yellow Porter. He was previously the CEO and group COO of iflix – a disruptive Internet TV-and-video-on-demand service that was launched in Kuala Lumpur, Malaysia, in May 2015. It now operates across more than 30 markets in Asia, the Middle East, and Africa and has 700 employees, all in less than three years from its launch. Previously, Azran pioneered the long-haul, low-cost-airline model as the founding CEO of Air Asia X. He led the airline’s growth from start-up to US$1 billion in revenue, 2,500 employees, and a public listing, all in just six years, breaking many low-cost airline industry conventions and introducing innovations along the way.

Worst investment ever

Azran’s worst investment ever was in AirAsia X. It started when the founders of the AirAsia group wanted to create a new airline because, interestingly, AirAsia had refused to do long-haul flights. After all, the board didn’t believe in their viability. So, a separate company had to be set up. And because no one in the airline industry thought it was possible, Tony Fernandez, the founder, had to find someone outside the industry who was gullible enough not to know that you cannot do this. Tony found Azran.

Borrowing to own equity

Tony suggested the idea to him and said he should fully align with other shareholders instead of just owning stock options. Azran did not have enough money in his savings or pension fund to buy equity, so Tony arranged a bank loan. In percentage terms of his net worth, Azran now had a much more significant chunk than Tony and the other shareholders. It also meant he had an enormous debt.

In that journey from startup to an IPO six years later, there were many times when the company was running on fumes and on the brink of collapse due to the 2008/2009 global financial crisis. Ultimately, the company was listed in the stock market and became the industry’s first long-haul low-cost airline to achieve a public listing. Now, institutional investors validated that this was a viable model and started investing their capital into the company. Azran and others who had put in money at par value at the start gained over a 6x return.

Using his first set of shares as collateral for another loan

Azran was carried away by the IPO process and its success, which led to his worst investment. As a CEO in an IPO in Malaysia, you get a special allocation. The investment bank somehow convinced Azran to double his stake using his first set of shares as collateral for another loan to buy an equal-sized chunk of shares at IPO value. That meant a lot more debt.

While the IPO was a success, the founders had created an airline model that no one thought possible, but now had attracted new entrants and had to be double the size of their next largest competitor. So they bet the $300 million IPO proceeds to double their fleet in 2014, a 50% capacity increase from 2013.

The disasters no one anticipated

Under normal circumstances, an airline takes a bit of a short-term loss for the demand to catch up to the new capacity, but you dominate the market. What Azran and the other founders did not count on was not one, not two, but three black swan events in the airline sector—three airline disasters.

The biggest markets affected were China and Australia. Azran had led a pre-IPO strategy to consolidate the company’s position, and almost 70% of its business came from these two markets. Hence, the company suffered a bloodbath regarding tourist arrivals, crashing by over 20%.

Losing all his shares to the bank

The share price started going south, and the bank that had loaned Azran the money for the shares started making margin calls. As a CEO, Azran did not want to be seen selling his shares, so he used cash from his savings to protect his shareholding.

In the end, the bank sold all of Azran’s shares (IPO and initial shares), leaving him with a seven-digit net cash loss. His paper loss was multiple times the cash loss. Eventually, Azran had to part ways with the board in that journey.

Lessons learned

  • Be wary of what banks or investment bankers tell you or advise you to do – They are receiving their fees and commissions even if your business suffers.
  • Have a backup plan – Every organization or individual should have a backup plan or alternative way to survive or recover from loss.

Andrew’s takeaways

  • The damage of leverage – There are really only two financial risks: debt and currency. If a business is run without debt, a considerable risk is reduced. In business and in life, the damage of leverage can never be understated. Obey the principle of trying to remain debt-free and the principle of diversification.
  • Never listen to financial people – Investment bankers, analysts, and other finance players usually never run a company. They sit on the sidelines doing research and giving advice without risking anything or having any “skin in the game.” In fact, they are making money from getting a business owner to follow their advice, which can be quite distracting.
  • Finance adds no value – Value is created through products and services. Value is created on the asset side of the balance sheet, where the assets of the business, the brains, and the commitment and determination of the people go into creating better products and services. The job of a company’s CFO is to use finance as a tool to support management decisions. Remember this: a CEO, young or old, who is out there trying to build their business should avoid being lulled into thinking that financial maneuvers are going to create long-term value.

Actionable advice

There is always A, B, or C in any crisis situation. You can’t have just one way to do things. Don’t be indecisive; rethink how you govern your organization to allow faster pivots.

No.1 goal for the next 12 months

Azran’s number one goal for the next 12 months is to finish running several clinical trials to see how digital interventions can help lead to healthier outcomes and devise a formula that allows him to scale to other markets.

Parting words

 

“It’s all about looking forward and not looking back. There’s a lot ahead of us. All the best to everyone.”

Azran Osman-Rani

 

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About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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