Global Logistic Properties (GLP), the Singapore-listed logistic developer and fund manager has entered into a “landmark agreement” with Chinese institutions that would see a considerable part of its China development pipeline funded.
The firm announced it had raised $2.35 billion from Chinese institutions including Bank of China and HOPU Funds, a collection of Chinese state-owned companies and institutions, and an unnamed but large Chinese insurance company. The capital has been raised for an entity called China Holdco.
Concurrently, GLP has also raised $163 million by issuing to the Chinese investors new shares valued at S$2.755 (€1.59; $2.18) each.
Including capital committed by GLP employees and management, the investment by the Chinese investors sees them obtain a 34 percent in China Holdco, in the process gaining a large exposure to the firm’s future developments in China. Meanwhile, they also have taken a small position in GLP itself via the purchase of its newly issued shares which come at a 5.6 percent discount to today’s price of S$2.91.
For GLP the investment by the Chinese institutions provides it with funding for a pipeline that currently extends to 104 million square feet.
Much of the firm’s developments in China had previously been funded by a private equity real estate vehicle called China Logistics Fund I, which closed on $1.5 billion last November. GLP said that fund, which was capitalized 56 percent by GLP and 44 percent by outside investors, is today 86 percent allocated – leading to the firm opening for further capital commitments.
Jeff Schwartz, GLP’s co-founder and chairman, told PERE following the announcement that his firm’s second major capital raising in China was structured in an alternative manner to its first for reasons beyond simply bringing in further capital.
Revealing that talks had began with the Chinese investors about five years ago, he said: “We thought it was critical for our business to have the who’s who in China as our investors. Raising capital is not the issue – with this we get strategic relationships that can give us access to the best customers and companies.”
Nonetheless, after this investment, the firm does not expect to raise another China fund in the near term, he said.
Schwartz emphasized that GLP chose to structure this investment as a corporate deal in order to assure a better alignment of interest with the Chinese institutions, something that a fund could not accomplish. “They become shareholders in our China business, and so we become part of the business fabric of China,” he said. “We want them to have invested interests in taking our China business to the next level.”
The relationships this transaction will establish for GLP should also give the developer better access to further land deals, Schwartz added, which can be a challenge to secure.
The transaction will complete in two tranches: the investors will buy $1.6 billion of new shares in GLP’s China Holdco and GLP’s listed entity, and then another $875 million of new shares in China Holdco at a later date. The investment also is subject to a lock-up period of three years.
The deal has personnel ramifications too. For one, once the investment is closed, GLP intends to appoint co-founder of Hopu Investments Fenglei Fang, who is best known for bringing Goldman Sachs into China, as an additional director onto its board.
Schwartz also said that about 10 percent of the total investment will be made by GLP employees as a way of “retaining and incentivizing” the firm’s China team. He said GLP is a “natural target for competitors to poach out people,” but that this transaction should keep staff motivated to stay.