Jeffrey Schwartz, the co-founder and chairman of Singapore-listed Global Logistic Properties (GLP), has had a busy start to the year patching deals together.
The global warehouse operator struck a deal in February with a consortium of Chinese investors -- comprising private equity fund Hopu, Bank of China and an undisclosed life insurer -- that will see them invest up to $2.5 billion, mainly in GLP's China subsidiary.
GLP, which counts Singapore's sovereign wealth fund GIC as its single largest shareholder, followed that up this month with an agreement to buy warehouses in Brazil for $1.4 billion.
Schwartz said he had been negotiating with the Chinese consortium for the last six to 12 months but that he had considered roping in other local investors for a much longer time. “This was something we worked on for five years,” Schwartz told FinanceAsia in a phone interview.” “In the end, it all pulled together in a way that was so much better because we got not [just] one strategic investor but multiple investors.”
One bank analyst who declined to be named said the move was also a defensive one, since it helps to avert the threat of a big private equity player joining forces with one of China's large state-owned enterprises (SOEs) to set up a rival to GLP.
Schwartz conceded the partnership had the added benefit of preventing that and that the company is keen to maintain its position as the biggest logistics property company in China.
Opening doors
He expects the investment to help open more doors for the company on the mainland, where guanxi or relationships count for a lot. "This will accelerate our growth, give us better access to strategic land holdings, better access to the big SOEs, big Chinese companies, more customer relationships," Schwartz said.
The investment by the Chinese consortium -- which is still subject to a GLP shareholder vote -- will see Fang Fenglei, the founder and chairman of Hopu, take a seat on the company's board. Fang is also the chairman of Goldman Sachs Gao Hua Securities and Hopu is backed by China’s largest SOEs and institutional investors.
Shortly after announcing the investment, GLP struck agreements with a number of large state-owned companies, including shipping and logistics company Sinotrans and grains giant Cofco, to develop logistics facilities across China. It has also struck a partnership with Bank of China, through which BOC will provide financing to GLP's customers, using the goods in the warehouse as collateral. GLP will also meet the bank's logistics requirements.
According to Schwartz, the investment from the consortium opened up doors to these alliances, which he described them as "just the tip of the iceberg."
The consortium, together with GLP management, will take a stake of up to 34% in GLP’s China subsidiary, reducing GLP's stake. Citi has been hired by GLP’s board to advise on the fairness of the investment.
Schwartz said GLP was open to the idea of listing its China subsidiary but that nothing was in the works at present. "We always look at whatever creates shareholder value for GLP and partners,” Schwartz said. “If it creates value by doing that sometime down the road, then it’s something we’d consider, but there is no concrete plan."
With domestic consumption in China rising, Schwartz sees considerable potential for the country's logistics market. "China has one-twelfth the amount of distribution space per capita that the US or UK has," Schwartz said. "We see no reason why that should be the case. We see it going to one-third of the US over the next 15 years, and being worth $2.5 trillion," he added.
GLP plans to spend $1.2 billion developing properties in China this year and $1.7 billion next year.
Nimble in Brazil
In Brazil, meanwhile, GLP proved to be nimble when it agreed to to buy a portfolio of warehouses, mostly in São Paolo and Rio de Janeiro, from developer BR Properties for $1.4 billion. It grabbed the properties just when Australian Goodman Group's exclusivity agreement with BR Properties to buy them ended.
GLP did not hire advisors for the Brazil acquisition. But Brazil-based BR Properties also counts GIC as a shareholder and analysts speculate that having a common shareholder was an advantage for GLP.
Schwartz is optimistic about the prospects for Brazil, despite the fact the country has again proved vulnerable to capital outflows in the wake of major emerging market sell-offs. “We like the Brazil market," Schwartz said. "It has had ups and downs but long-term, we see a strong growth trajectory, with [a] young population, rising domestic consumption, more crude oil reserves than Saudi Arabia and more water," he said.
GLP's property assets are mostly located in China, Japan and Brazil. When asked if it has any plans to expand into India, Schwartz said, "I haven't figured out how to make money in India at all, no one has. So one day, probably [we might go to India], but not any time soon."
"We are number one in markets that total 1.7 billion people, which is two and half to three times the combined population of the US and all of Europe. We're number one in those markets, so why do we need more? Why don't we just keep growing [in] the markets we are in and focus on that," he said.
