Global Logistic Properties made what looks like a strategic investment in the world of logistics tech this February when news reports revealed that the warehouse developer was joining with a private equity affiliate of China Development Bank to invest $45 million in Beijing-based big data company G7.
What didn’t make the headlines about the investment, which GLP made together with China Development Bank Capital Management, was G7’s relationship with GLP CEO Ming Mei.
Less than one year prior to GLP taking the plunge with G7, a Shanghai-based venture capital firm where Mei serves as chairman had joined with China tech giant Tencent and Singapore’s Temasek Holdings in a $45 million series C financing round in the maker of devices for providing real time data on the activities of trucking fleets. The valuations for the consecutive rounds of financing were not disclosed.
The February investment by GLP is one of a number of instances uncovered by Mingtiandi where the Singapore-listed firm has chosen to take a stake in, or engage in business bring potential benefit to mainland companies that already have received funding from Eastern Bell Venture Capital. According to a GLP representative who spoke with Mingtiandi regarding the deals, the company is confident that the deals do not present a conflict of interest for the chief executive of the $10.1 billion Singapore-listed market giant. Regardless of their potential personal benefit to the company’s chief executive, the deals are said to have not required approval by GLP’s board.
Mingtiandi was unable to find a record of Mei holding shares in Eastern Bell, however, a GLP spokesperson confirmed that its chief executive has been an investor in Eastern Bell’s funds.
GLP Management Issues Arise With Buyout Bids Due Friday
Mei’s involvement with the venture capital fund, and the GLP board’s apparent disinterest in a criss-crossing set of investments between the warehouse developer and its top executive, could become an issue as the company’s directors mull buyout offers from a consortium of mainland investors led by Mei as well as from other private equity groups said to include Warburg Pincus. Final proposals from would-be buyers of the company are due Friday, June 30th.
News reports this week indicated that Singaporean sovereign wealth fund GIC, which is GLP’s largest shareholder with a 37 percent stake, was forced to confront GLP managers over complaints from competitors of the Mei-led group regarding unsatisfactory information sharing during the due diligence process leading up to the bids. Investors including Blackstone are said to have walked away from the opportunity to own Asia’s leading logistics platform over the appearance that the buyout process was tilted in favor of the bid led by Mei and Fang Fenglei’s Hopu Investment Management.
While GLP has tried to reassure investors with statements that an independent committee headed by company chairman Seek Ngee Huat is ensuring a fair and transparent bidding process for the company, the GLP board’s apparent history of disregarding deals that could bring direct benefit to Mei raises potential concerns.
Seek, who became GLP chairman in 2014 is leading the committee handling the buyout process. The former head of real estate for GIC, who worked with Mei in creating GLP from the former China and Japan assets of logistics developer Prologis in 2008, has headed GLP’s board as the company made a series of investments into Eastern Bell-related companies during the last year.
Eastern Bell Deals Precede GLP Investments
In addition to February’s G7 deal, GLP has followed the lead of Mei and Eastern Bell in making investments in O2O trucking platform Fuyoukache and B2B logistics platform KXTX. The warehouse developer participated in financing rounds that delivered a combined $81 million to G7 and Fuyoukache over the last 12 months, following earlier investments by Eastern Bell. No monetary figure was publicised for GLP’s investment into KXTX.
In addition to the direct investment deals, GLP last month agreed join with Shanghai-based logistics company UC Express and a unit of the Bank of China to set up a RMB 2 billion (US$290 million) to RMB 3 billion (US$440 million) logistics fund in Xi’an, to promote logistics in the region. Mei’s Eastern Bell had led a US$45.6 million investment round in UC Express just one year earlier.
Eastern Bell, which was founded in 2009, lists Ming Z Mei as its chairman on its website, and the company introduction says that it focuses on opportunities in China’s logistics and supply chain sector, as well as in consumer goods and services. Some 48 companies are listed in its portfolio, including 16 from the logistics sector. Co-investors in Eastern Bell’s deals include some of the VC world’s biggest names such as Sequoia Capital and China’s New Horizon Capital, which has been linked to Wen Yunsong, son of former Premier Wen Jiabao.
In addition to the direct investments by GLP in Eastern Bell’s portfolio companies, in November last year GLP provided RMB 100 million (then $15 million) in financial credit to Fuyoukache, just six months after the developer invested in the trucking platform’s $15 million series B round, which was led by Eastern Bell.
Eastern Bell Deals Fall Below GLP Reporting Requirements
Because GLP’s tech startup deals fell below the minimum financial standard for qualifying as material investments for the $10 billion listed firm, GLP was not required to declare the deals to the Singapore exchange. Mingtiandi was also unable to find any record of press releases regarding investments by GLP in Eastern Bell related firms among the scores of media communications that the developer sends out each year regarding its most recent achievements.
Standard practices for venture capital investments would indicate that GLP investing in the startups during later rounds, following Eastern Bell investments, would likely mean the developer is investing at higher valuations than what Eastern Bell paid. The investments by GLP could also enhance the value of Eastern Bell’s holdings, both through the valuation achieved during those later rounds as well as through the perceived value of having $10 billion listed company as a stakeholder in the startup firms.
Sitting at Both Sides of the Table is Not a Problem
Despite these potential complicating factors, the warehouse developer expresses confidence that the investment activities do not compromise shareholder interests, and that the deals do not represent a conflict of interest for Mei as he acts as both a director of GLP and a stakeholder in companies where the developer is investing.
“Ming disclosed his investment and involvement in Eastern Bell to the board. So in terms of conflict of interest, there is none, as the board is aware,” a spokesperson for the company explained to Mingtiandi.
Asked about Mei’s role at Eastern Bell, where he is listed as chairman of Eastern Bell’s investment committee on the Chinese version of the company’s website, the GLP spokesperson said that, “He invests in these funds, but he is not involved in daily operations, or in investment decisions.”
As a director of GLP, Mei is said to have recused himself from company decisions regarding any investments in Eastern Bell portfolio companies.
The spokesperson added that because Mei continues to devote his full time efforts to GLP, and is not involved in Eastern Bell on a day-to-day basis, that his role at the venture capital firm was not required to be filed as part of his biography as director of the company as registered with the Singapore exchange. The spokesperson also added that Mei’s personal focus was very much on his duties at GLP.
Eastern Bell Also Invested in GLP Clients
In addition to Eastern Bell’s involvement in companies where GLP later chose to invest, the VC firm also lists among its portfolio companies third-party logistics provider Deppon Logistics. Shanghai-based Deppon, has signed a series of leasing commitments with GLP over the last several years that make the 3PL one of the developer’s five largest clients.
GLP and Deppon both were parties to the acquisition of a stake in China Eastern Airlines’ cargo division earlier this month, said to be valued at RMB 4.1 billion ($602 million). Under the terms of the air cargo deal as released by China Eastern, GLP is said to have taken at 10 percent stake and Deppon a five percent share of the state-run carrier’s cargo service.
In other cases, Eastern Bell invested into companies where major GLP clients are among the stakeholders, as is the case with logistics platform KXTX, where GLP tenant Cainiao paid an undisclosed amount to become the company’s second largest shareholder in 2014. Eastern Bell had led the series A financing round for the Shanghai-based logistics startup in 2011.
A fund affiliated with Cainiao founder Jack Ma is now said to be joining Ming Mei’s bid to buy out GLP, although sources familiar with the investment group could not confirm the exact make-up of the consortium at this time.
It’s All OK If You Tell Them You’re Doing It
After learning of the GLP board’s approval of the company’s investments in Eastern Bell portfolio firms, leaders of institutional investors active in the region expressed puzzlement over the developer’s outlook on conflicts of interest and the latitude that Mei has been given to make personal investments that overlap with GLP deals.
“It’s impossible to sit at both sides of the table and say that you’re impartial,” noted a senior executive of a US real estate investment firm who was briefed on the GLP-Eastern Bell connections by Mingtiandi.
The executive, whose company has no dealings with GLP or the buyout process, noted that, “Even if you can document that an investment is done at arm’s length or that you’ve recused yourself, owning a stake in a company personally, and then investing in that company as the head of a listed firm looks like the definition of conflict of interest.”
GLP’s pattern of entering into deals that appear to benefit Eastern Bell portfolio companies, could become an issue as the warehouse developer’s board makes its decision regarding the buyout offers due on Friday. And the company’s conduct of the bidding is already under fire for allegedly favoring the Mei-led bid.
“The process is a farce and the most unprofessional I have ever seen,” a private equity executive from a company said to have knowledge of the buyout told the Financial Times last week. “No fair play.”
Following that report, GLP defended the integrity of its process in a public statement which noted that, “the Strategic Review is being overseen by a Special Committee which comprises four independent directors of the Company, with the assistance of J.P. Morgan (S.E.A.) Limited as financial adviser and Allen & Gledhill LLP as legal adviser.”
The company said that the strategic review, which is expected to lead to a sale of the company, is being conducted independently and that it has “undertaken measures to alleviate potential conflicts of interest and ensure fairness of the process.” No timetable has been announced for a decision on which bid will get to walk away with the $10.1 billion global logistics prize.
Updates and Corrections: Since this article was originally published, Mingtiandi has been informed that GLP was not an investor in the Eastern Bell Venture Capital-backed startup, Yi Jiu Pi. References to the company and Eastern Bell’s investment in it have been removed. The original article also stated that Global Logistics Properties’ investments in the series of Eastern Bell-backed ventures had been approved by the board. In fact, they are said to have not been required to be approved by the board, and these references have been clarified. Mingtiandi regrets the errors.
Also since originally publishing the article, Mingtiandi has found that GLP entered into a deal last month to create a logistics fund with Eastern Bell-backed UC Express. This information has been appended to the article to promote better understanding by our readers.