ESR Cayman, one of Asia’s largest warehousing companies, has kicked off a HK$9.76 billion ($1.24 billion) initial public offering that is set to leave Hong Kong in a stronger position against its regional rivals in the race to host prime logistics companies.
Created through the merger of Warburg Pincus-backed e-Shang and Singaporean warehouse builder Redwood Group in 2016, ESR started collecting institutional orders for its 560.7 million-share IPO on Wednesday. The retail offering is slated to begin Thursday.
Even if ESR prices its share sale at the bottom of the HK$16.2-to-HK$17.4 indicative price range, it will still become Hong Kong’s largest IPO this year, surpassing Shenwan Hongyuan Group’s $1.16 billion deal in April.
ESR’s Hong Kong floatation will be a boost to the city’s stock exchange since most of the region’s major logistics firms are listed elsewhere.
Singapore, home to 44 real estate investment trusts (Reits) and property trusts, was the listing venue for GLP before it was taken over by a consortium of Asian and US investors in 2017. Australia’s stock exchange hosts Goodman Group, while US logistics giant Prologis has the bulk of its Asian assets under Japan-listed Nippon Prologis Reit.
ESR's Hong Kong IPO follows two separate fundraising deals with JD.com and CLSA in May and June last year, respectively.
South Korean conglomerate SK Holdings also invested W374 billion ($333 million) for a 10% stake in ESR in August 2017, seven months after the company raised $300 million from a group of Chinese investors including GF Securities, Huarong International and China Everbright.
ESR has historically lagged behind its competitors in terms of funding channels because it is the only unlisted, large warehousing company in Asia. Up until 2016, its operations were largely funded by Dutch pension fund APG Asset Management’s $650 million capital injection.
However, it has since expanded its logistics portfolio sharply as new money has come in. As of the end of last year, its total logistics assets had grown by nearly 90% to 6.6 million square metres from 3.5 million square metres in 2016.
ESR is the third-largest logistics group in Asia behind GLP and Goodman Group, which have over 46 million sqm and 12.3 million sqm in total gross floor area in Asia-Pacific, respectively.
But it is set to grow faster than its two largest rivals in the near term by developing a further 3 million sqm of properties by the end of next year, compared with 1.5 million sqm in the case of GLP and 1 million sqm in the case of Goodman, according to ESR's prospectus citing Jones Lang LaSalle estimates.
Besides developing and managing its own properties, ESR also invests in third-party property managers and has stakes in Singapore-listed ESR Reit, Sabana Reit and AMIS AMP Capital Industrial Reit, as well as in Australia-listed Centuria and Hong Kong-listed CNLP.
These equity stakes are worth over $5.1 billion – or about 85% of ESR’s $6 billion market capitalisation, as currently implied by its IPO.
ESR’s IPO comes at a time of heightened interest in logistics assets in Asia-Pacific, driven by the region’s rapid urbanisation and rising wealth, as well as its high broadband and smartphone penetration, which is making it easier for people to order goods online.
In particular, the rise of e-commerce in China is generating strong demand for modern high-quality logistics assets. China is ESR’s largest single market, accounting for about 40% of its total gross floor area at the end of last year. It also owns and manages properties in Japan, South Korea, Singapore and India.
ESR counts Amazon, JD.com, H&M, Carrefour and Daimier among its major clients.
The company's looming sale of shares is one of the few billion-dollar Hong Kong IPOs in recent years without a cornerstone tranche, so it could really solely on public institutional and retail investors.
The offering comprises 327.1 million new shares and 233.6 million outstanding shares offered by a group of existing shareholders, including Warburg Pincus, APG and General Electric.
Pricing for the IPO is scheduled for June 12 and listing is set for June 20.
Deutsche Bank and CLSA are joint sponsors of the IPO. Citi, Credit Suisse, DBS and Goldman Sachs are join global coordinators.