After a six month pursuit of Global Logistic Properties, the list of potential bidders for the region’s leading warehouse developer is down to two entrants with formal bids due on June 30th.
Blackstone Group, which earlier this month brought in $13.8 billion from selling its Logicor European warehouse platform to CIC reportedly dropped out of the competition this month after having been said to have been included in the shortlist of bidders in February. GLP began a strategic review process last December at the request of its controlling shareholder, Singaporean sovereign wealth fund GIC after receiving a buyout inquiry from a mainland consortium led by former Goldman Sachs China partner and GLP board member Fang Fenglei’s Hopu Investment Management.
The exit of the US private equity giant leaves only the mainland consortium, which has reportedly been joined by GLP chief executive Ming Mei, competing against US private equity giant Warburg Pincus for the $9.9 billion logistics developer’s portfolio of distribution facilities covering 22.1 million square metres across China, Japan, the US and Brazil.
Mainland Group in Pole Position
The paucity of bidders for one of the world’s most valuable real estate prizes has been attributed to the perception that the mainland consortium has the inside track in the sale process due to the participation of Mei and Hopu. Investments led by the mainland private equity firm have previously brought significant personal benefits to Mei and GLP’s late co-founder Jeffrey Schwartz, according to filings by GLP related to the transactions. Mei and Schwartz co-founded GLP with the support of Fang and GIC in 2008.
While reports last year linked Chinese sovereign wealth fund CIC to the Hopu-led bid, the consortium’s participants are now said to include a wide range of leading mainland corporates and investment funds. Investor Zhang Lei’s Hillhouse Capital, top mainland insurers China Life and Ping An, top four mainland financial institution Bank of China and affiliates of mainland ecommerce players JD.com and Alibaba have all joined the bid, according to sources familiar with the strategic review who spoke with Mingtiandi.
In the middle of this month Reuters reported that developer China Vanke had joined the consortium and that the group was in discussions with at least two other potential Chinese investors to participate.
The consortium bid is said to have been set up in a way similar to a private equity fund, in a structure that gives significant control to Mei, Hopu and Hillhouse.
Warburg Pincus Doubles Down on Asia Logistics
With Blackstone now apparently out of the running, the mainland group is aligned against a competitor, Warburg Pincus, which has the opportunity to turn a six-year-old investment in Shanghai-based logistics developer e-Shang, now part of e-Shang Redwood (ESR), into a global logistics real estate platform spanning more than 28 million square metres of distribution facilities.
Through ESR, Warburg Pincus also has a management team deeply familiar with GLP, and potentially ready to run the company with or without its current leadership.
ESR co-CEO Jeffrey Shen, who joined with Warburg Pincus in setting up e-Shang in 2011, is a former senior vice president at GLP in China. ESR President Charles de Portes, along with company co-CEO and head of Japan Stuart Gibson, previously served as executives at Prologis Japan, before that company was spun off to help form GLP in 2008.
ESR has built a platform of some 6.5 million square meters of projects owned and under development across mainland China, Japan and South Korea over the past several years, and is currently said to be looking at development and acquisition opportunities in Australia.
By privatising GLP and combining it with ESR, Warburg Pincus would have a dominant platform in an asset class prized by sovereign wealth funds with holdings in the high growth markets of China and Brazil, balanced against the stable earnings already being achieved by its assets in the US and Japan.
Mainland Consortium Has Deep GLP Ties
While Warburg Pincus could achieve a significant payday from winning the GLP contest, that motivation may not be adequate for overcoming the deep ties between Hopu and GLP’s management.
The strategic review is being overseen by an independent committee of GLP directors led by company chairman Seek Ngee Huat. However, that structure has not prevented questions about the way that the sale is being handled.
“The process is a farce and the most unprofessional I have ever seen,” a private equity executive told the Financial Times last week. “No fair play.”
The ties between the parties involved go back to the time when then Prologis executives Jeffrey Schwartz and Ming Mei saw the opportunity to sell off the China and Japan holdings of the then-distressed US logistics giant during the 2008 financial crisis. While bailing out a cash-strapped Prologis, the transaction would also transform Schwartz and Mei from warehouse real estate executives to being co-owners, along with GIC, of a fast-growing logistics platform in an Asia hungry for distribution space.
Fang, who formerly was a China-based partner in Goldman Sachs, set up Hopu in 2007 with backing from Singapore’s Temasek Holdings and Goldman Sachs, as well as the participation of some key former Temasek managers. The former investment banker is said to have used his Singaporean connections to introduce Schwartz and Mei to GIC in 2008, when Seek was running the $330 billion sovereign wealth fund’s real estate investments.
Hopu Investments Create That Win-Win for GLP and Its Management
In December of 2008, GIC affiliates acquired Prologis’s Japan and China operations for $1.3 billion, and in the process set up a fifty-fifty joint venture with Schwartz to manage the former Prologis warehouse assets, according to statements by GIC at the time.
The connection with Fang and Hopu paid off again in 2014 when the private equity firm helped arrange the private placement of $2.1 billion in new shares issued by GLP’s China operation to a Hopu-led mainland consortium that also included China Life and Bank of China.
As part of that share sale, which was approved by GLP’s board when Seek was still leading real estate investments for the company’s largest shareholder, Ming Mei and Schwartz each personally received $56.75 million in shares in the China operation, as well as options for another $21 million in shares, according to company records. Seek became chairman of GLP in June 2014, just after the completion of the Hopu-led investment.
The mainland consortium’s 2014 investment also provided, as incentives to Mei and Schwartz as managers of the company and as approved by GLP’s board, an allocation of $253.75 million in total shares in the China operation financed by a $233.75 million limited recourse loan from the mainland investment consortium. Also included were options for up to 5 percent of the mainland consortium’s newly issued shares in GLP China for Mei and Schwartz.
The shares and options for Mei and Schwartz were part of the 2014 Hopu-led share transaction which was approved by GLP shareholders in February of that year at a share price of 1.0 times the book value of the mainland-based assets held by GLP China. The China operations debatedly constituted GLP’s most promising assets at a time when shares in the overall company were trading at 1.3 times book value, according to analysts familiar with GLP who spoke with Mingtiandi.
With bids for GLP due on June 30th, and only two competitors remaining in the process, the investment giants who passed on the opportunity to acquire the logistics developer seem to have already concluded that GLP’s strategic review will again result in a win-win deal for Hopu and GLP’s management, although the transaction would still be subject to approval by GLP’s board.
Note: This story updates an earlier version which had included Hillhouse Capital Management as a party to the 2014 Hopu-led investment in GLP. While Hillhouse is understood to be part of the current mainland consortium, it did not participate in the 2014 GLP China share sale. Mingtiandi regrets the oversight.