SM plans future listing of China malls

SM Investments is planning to list its China mall portfolio either in Singapore or Hong Kong once it has built up critical mass.

SM Investments, a holding company controlled by Philippines' powerful Sy family, plans to spin off its malls in China into a real estate investment trust or public offering, once it has built up a big enough portfolio.

“The long-term plan is that as soon as we have enough malls, then we can separately list the China malls, either in Hong Kong or Singapore,” Jose Sio, chief finance officer of SM, told FinanceAsia in an interview held at Mall of Asia Complex, a huge SM shopping complex in Manila.

However, firstly it will have to build up a critical mass. SM Investments - which is listed in the Philippines, where it is the biggest mall operator - currently has five malls in China with a total gross floor area of 800,000 square metres.

It plans to open two more malls in the immediate future -one in Shandong province this year, and a massive 540,000 sq metre mall in Tianjin, which will be the group’s largest mainland mall when it opens next year. According to Sio, SM plans to have at least 10 to 12 malls in China before listing.

SM's China mall expansion is due largely to its billionaire founder Henry Sy’s affiliations to the mainland. Sy, who hailed from Jinjiang, a small city in the Fujian province, is the classic rags to riches story.

He was born in poverty and emigrated to the Philippines, opening his first small Shoemart store in 1958. Over the years, he built up the family wealth, which includes stakes in Banco de Oro, the biggest bank in the Philippines, and SM Prime, the country's biggest property company.

SM opened its first mall in China in 2001 in Fujian province, where Sy hails from. It subsequently opened a second mall in Sy's hometown city in Fujian in 2005 and the remaining three malls are in Sichuan, Jiangsu and Chongqing.

In a country where guanxi, or relationships, are important, the group has fostered ties with local mainland authorities, who paid visits to SM's malls in the Philippines before inviting the group to erect malls in China. And according to Sio, the group is investing in China for the long haul.

“We are not there to invest and sell,” he said. “We are there to invest, stay there, manage it and we don’t sell our properties, that’s what differentiates us from the others” he added.

The company plans to focus its mall expansion on China's second tier cities where it sees better opportunities, rather than Shanghai or Beijing. And Sio is quick to emphasise that SM remains focused on the Philippines, where it has 48 malls, and is the dominant operator.

“We feel that our strength is really on the local side [in the Philippines],” said Sio (left). “China is our first overseas investment project. We are there because Mr Sy is from China,” he added.

In addition to its malls, SM also plans to expand into residential property development in China. SM last year consolidated its real estate businesses in a complex share swap, which included injecting SM Land, which was previously privately held by the Sy family, into SM Prime.

SM's malls, residential development and hotels are all housed under SM Prime, which Sio says enables the different groups to communicate with each other, as they expand mixed use developments both at home and in China.

While it is keen to build homes in China, the group is cautious about launching its supermarkets and department stores on the mainland, as it is not familiar with the dynamics of the retail industry there.

“You may be successful here [in the Philippines] because you know the retail environment here, but that does not mean that you will be successful in China,” said Sio. "We don’t feel that we will open up retail in China,” he added.

Other retailers have struggled in China or ended up going into joint ventures with mainland partners. UK supermarket retailer Tesco last year decided to partner state-backed China Resources Enterprise, after struggling to make it on its own.

¬ Haymarket Media Limited. All rights reserved.
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