GLP’s privatisation price belies China slowdown

Despite a glut of warehouse space, investors are betting big on one of the largest proxies for ecommerce growth in China.

A Chinese consortium’s S$16 billion ($11.6 billion) privatisation of one of the biggest warehousing companies in China, Global Logistic Properties, is not in sync with the slowdown in the world’s third largest economy.

With China’s economy recording its slowest growth in 25 years, an oversupply of warehousing is already apparent in Tianjin and Chengdu, logistics analysts say.

The Chinese consortium, which comprises private equity firms HOPU and Hillhouse Capital; GLP’s chief executive officer Ming Mei; and property developer China Vanke, as well as the investment arm of the Bank of China, is betting that this supply-demand-imbalance is temporary.

The logistics sector in China is growing rapidly, in tandem with Chinese consumers’ online shopping binge. Ecommerce companies from Alibaba to are hunting for more warehouses to store their goods.

GLP owns and manages a portfolio of 55 million square metres in China, Japan, US and Brazil. China makes up 57% of GLP's net asset value and the company commands about 17.5% of the modern logistics market in China in terms of square metres.

“GLP is the best proxy on growing ecommerce in China,” said one person familiar with the deal.

A drive to shorten delivery times to customers has prompted a wave of domestic and foreign companies to invest in logistics, including projects Vanke started in Guiyang and Wuhan in 2015.

This has created a glut of supply.

“We are expecting near-term challenges in both China and Japan amid a growing supply of warehouse and logistics properties,” said Peter Ng, an analyst at Phillip Capital.

Tenants are taking longer to commit and asking for concessions. “[GLP’s] China rollout appears aggressive considering the lease ratio of 85% has fallen to its lowest since listing,” UBS analyst Michael Lim said in a report.

Still, the Chinese consortium must be fully aware of the supply glut in China. Hillhouse, Hopu and GLP’s CEO are already shareholders in the firm. 

The consortium is prepared to offer S$3.38 cash per share, a premium of 64% over the last undisturbed share price and 72% over the three-month VWAP per share. Investors will still get the proposed dividend of S$0.06 per share announced on May 19.

“The weak leasing environment and soft occupancy ratios are secondary considerations [for investors] at this point,” said UBS’s Lim in reference to the rising share price on rumours of the potential privatisation across recent months.

The consortium members have managed to organise financing other than their own equity for the deal; that helped make this the largest ever private equity-led leveraged buyout in Asia, topping the privatisation of Qihoo 360 Technology

In the final stages of the auction, the Chinese consortium fought off another group led by private equity firm and veteran China logistics investor Warburg Pincus. It also saw off competition from the likes of Blackstone, Temasek, RRJ Capital and Prologis earlier on, according to another person familiar with the deal. 

The consortium has amassed about $4.65 billion in debt financing to buy GLP to add to their own equity, despite a relatively large number of other bidders in the market also seeking to secure funds. Their financial advisors will look to syndicate this out in loans, the second person said. 

Citigroup, Morgan Stanley, Goldman Sachs are advising the consortium on the bid and providing the financing. DBS and CICC advised on the acquisition and the scheme of arrangement to buy GLP. Kirkland gave legal advice to the consortium while Morrison & Foerster attorneys acted as international counsel to GLP. 

What next?

The deal marks the conclusion of a strategic review, first announced on December 1, 2016. Singaporean state fund GIC, as the single largest shareholder of GLP with a 36.84% stake, requested the review and said it would vote in favour of the scheme.

Throughout the process GIC pushed hard for a high price and few conditions, according to a third person familiar with the deal. 

The review was overseen by the special committee of the board of directors of GLP, comprising four independent directors. The committee’s financial adviser was JP Morgan and legal adviser Allen & Gledhill.

They decided the consortium was the best bidder, citing the price; greater degree of deal certainty due to the limited conditionality of the bid; and the fact it would likely be completed within a defined timeframe, which would reduce execution risk.

One key consideration for GLP was making sure that all of the Chinese consortium's money was offshore so it would not have to wait for money to arrive from the mainland. Another comfort was GLP would not need approval from the US authorities, as the buying consortium was taking all of the regulatory risk upon itself. The buyer might therefore need to sell GLP's US assets in the unlikely scenario that the Committee on Foreign Investment (Cfius) in the United States blocked the purchase. GLP's US assets make up only about 9% of the company.    

The equity cheques that Bank of China and Vanke are offering also meant that leverage was reasonable. 

Warburg Pincus' offer was in contrast less certain, with more conditions and higher leverage. There were also concerns that China's Ministry of Commerce might raise anti-trust issues given that Warbrug Pincus is an investor in another modern logistics company in China, e-shang Redwood.

GLP will appoint an independent financial adviser to advise independent directors for the purposes of making a recommendation to shareholders in connection with privatisation.

The deal needs more than 50% of the number of shareholder votes representing at least 75% in value of the shares at a shareholders meeting on July 28, as well as approval from The High Court of Singapore.

If shareholders approve the deal, GLP said the transaction would likely complete on or before April 14 next year.

¬ Haymarket Media Limited. All rights reserved.
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