China logistics: Time to deliver

In 2014, Global Logistic Properties (GLP) put a number on the potential size of China’s modern logistics market: it would be worth $2.5 trillion by 2029 as supply ballooned from 550 million square meters – of which only 20% was classified as modern – to 2.5 billion sqm. Even then, logistics space per capital would only be one third that of the US, up from a 2014 level of one 12th.

At the time, GLP had a $16.9 billion portfolio comprising 23.4 million sqm of warehousing, of which nearly three quarters was based in China. That portfolio is currently worth $40 billion, with China accounting for just over half of the 53 million sqm in facilities completed or under development.

And now private equity has put a number on GLP. Warburg Pincus, The Blackstone Group, and a consortium comprising three existing minority shareholders – Hopu Investment, Hillhouse Capital and GLP’s CEO – is said to have submitted bids for the Singapore-listed company. Interest has sent the market capitalization soaring to $9 billion, giving the company an enterprise valuation of around $12 billion. Should a deal go through, it would likely be the largest-ever PE-backed privatization in Asia.

While GLP’s interests cover the US, Brazil and Japan, its China presence is seen as the most significant asset. The company is a clear leader in terms of modern logistics capacity, with its 15.8 million sqm of completed facilities, nearly eight times that of second-placed Goodman Group. GLP is a proxy for rising domestic consumption, and e-commerce specifically, with retailers and express delivery and transportation players accounting for the bulk of leased area. It also makes for an instructive case study of the different ways in which capital is entering China’s logistics space.

Until three years ago, annual private equity investment in trucking and courier services, warehousing, and transportation services had never topped $2 billion, according to AVCJ Research. In 2014, it reached $3.5 billion across 15 deals – both records – and then came to $2 billion and $2.7 billion over the subsequent two years. Most of the leading logistics providers, including Cainiao Network Technology, SF Express, Best Logistics Technologies and ZTO Express have received backing from private equity investors, as have warehousing specialists such as Shanghai Yupei Group and e-Shang Redwood.

However, this does not reflect the full quantum of capital active in the sector. The 2014 figure was so high because GLP sold a 1.5% equity stake in itself and an approximately one third interest in its China subsidiary to a consortium of Chinese investors – Hopu, Boyu Capital and China Life Insurance, among others – for $2.5 billion. But this joint venture approach is complemented by an expansive fund management operation that covers real estate investment trusts, income funds and development funds across all of GLP’s markets. The likes of Goodman and Prologis employ similar strategies.

The company’s equity commitment across all 12 fund products, which have combined assets under management of $39.1 billion, is $17.6 billion. The rest comes from third parties. When GLP established its second China development fund in 2015 with $7 billion in capital, 56% came from the parent with the balance provided by seven institutions, including pension funds and sovereign wealth funds from Asia, North America and the Middle East. Four of them also backed Fund I, which raised $3 billion in 2013.

GLP therefore does not represent a traditional private equity buyout. It is an owner and operator of logistics facilities, but also a financial services provider; its fundraising model is driven by the ability to deploy capital rapidly and ultimately generate proceeds through sales. GLP’s pursuit of scale is only sustainable as long as these outside investors believe in the opportunity and that the company’s access and execution ability warrants a fee. For now, at least, the macro fundamentals appear to be on its side.

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• Topics
• Greater China
• Industrials
• Real estate
• Buyouts
• China
• Logistics
• Transportation