China’s grand plan to connect Asian and European economies over land and sea has served as an unlikely source of funding for Singaporean property firm Global Logistic Properties’ expansion into Europe.
The first so-called ‘belt and road’ bonds issued on the Shenzhen Stock Exchange by a company based outside China will help GLP finance its recent purchase of the Gazeley logistics platform, and demonstrates the financing options open to Asian investors in European property.
Chinese authorities have allowed GLP to issue up to $1.8 billion of B&R bonds, a new financial instrument intended to finance projects related to President Xi Jinping’s One Belt One Road program, as well as increase China’s influence in global affairs by creating a remodeled trading network.
The bonds, issued by Hong Kong subsidiary GLP China, will be issued in multiple tranches, depending on the firm’s financing needs and market conditions. Although further details of the notes were not disclosed, PERE sister publication Real Estate Capital understands the bonds, which can be traded not only by Chinese investors but also by foreign institutional investors, are unsecured.
Chinese investment in the B&R initiative, 2013-17
Source: China’s National Development and Reform Commission
The bond proceeds are expected to allow GLP to diversify its financing sources for the €2.8 billion acquisition of Gazeley while supporting its business growth, a company spokeswoman told Real Estate Capital. Following the Gazeley deal, GLP said it would fund the European logistics platform with $1.2 billion of debt facilities.
The OBOR strategy seeks aggressive, large-scale overseas investment in the industrial, logistics and infrastructure sectors. The initiative represents an exception to China’s clampdown on overseas investments – including in real estate – in a move designed to stabilize the yuan, restrict capital flight and reduce financial risk.
In an official statement, the Shenzhen Stock Exchange noted that GLP’s acquisition of European logistic assets will be “beneficial” to improve infrastructure and trade flows within the B&R framework, while exploring new financial flow mechanisms supporting the initiative.
The ‘panda’ bond market, yuan-denominated notes issued in China by non-Chinese entities, is expected to provide foreign companies with access to Chinese capital markets and GLP’s bond shows its potential for large real estate transactions.
“Well-known names like GLP are definitely welcome to tap the Chinese onshore market. Chinese regulators encourage more issuers along with the B&R countries to come to the Chinese capital market, mainly through issuing panda bonds to get financing to support their B&R projects,” said Ricco Zhang, Asia-Pacific director at the International Capital Market Association.
He added that the move can further encourage the internationalization of the yuan, as well as integrate the Chinese market into international capital markets.
Gordon French, HSBC’s head of global banking and markets in Asia-Pacific, noted in an article from the bank’s website that financing China’s need for transport, telecoms and energy infrastructure across more than 60 countries will require all available sources of private and public sector capital.
“It will also generate a broad spectrum of opportunities for local and international investors – and stimulate capital market development in many Asian markets where bank lending still tends to dominate financing,” French added.