UPDATE 1-Dutch pension fund APG invests up to $650 mln in China warehouse firm

Thu May 29, 2014 6:13am EDT

* APG to buy 20 pct of e-Shang, set up joint venture

* JV to build, run modern logistics properties in China

* e-Shang has raised over $1 bln in equity, plans IPO (Adds detail on China logistics industry, e-Shang expansion plans)

By Stephen Aldred and Clare Jim

HONG KONG, May 29 (Reuters) - Dutch pension fund APG Asset Management will spend up to $650 million to buy 20 percent of Chinese warehouse firm e-Shang and establish a joint venture, aiming to capitalise on strong demand for storage amid an online shopping boom in China.

APG and e-Shang, backed by private equity firm Warburg Pincus LLC, will use the joint venture to develop and run modern logistics real estate assets across China, the companies said in a joint statement on Thursday.

China's ageing warehouses could require investment of $2.5 trillion over the next 15 years to cope with a surge in e-commerce, Reuters recently reported. By 2020, China's e-commerce sector will be larger than those of the United States, Britain, Japan, German and France combined, consultants KPMG said in a recent report.

The demand for warehouses has drawn the attention of pension funds such as the Canadian Pension Plan Investment Board and private equity firms such as Blackstone Group LP and Carlyle Group LP.

"With the continued growth of third-party logistics, e-commerce and the evolution of domestic consumption patterns combined with a severe shortage in the supply of modern logistics facilities, we strongly believe that the logistics real estate sector in China will be a long-term beneficiary of these trends," Sachin Doshi, APG's head of non-listed real estate for Asia-Pacific, said in the statement.

APG, which managed assets of more than 359 billion euros ($488.15 billion) as at the end of April, will consider further real estate investment of this kind in Asia, Doshi said in an email response to questions from Reuters.

Shanghai-based e-Shang, co-founded by Warburg and two local partners in 2011, owns over 1.5 million square metres of completed and ongoing warehouse projects in China.

APG's investment will take the amount of equity capital e-Shang has raised to over $1 billion. That includes a $120 million loan from Goldman Sachs Group Inc extended in anticipation of e-Shang conducting an initial public offering.

e-Shang is positioned to more than triple the size of its warehouse portfolio over the next few years, said Jeffrey Perlman, an executive director at Warburg.

Less than 20 percent of China's warehouses are categorised as modern, with fully computerised tracking systems and the latest in retail technology, according to Global Logistic Properties Ltd (GLP) and other warehouse builders.

The lack of technology can cut into profits for e-commerce firms. Though wages in China are much lower than in the United States, it can cost over twice as much to transport goods, according to GLP, the biggest foreign builder of logistics facilities in China.

($1 = 0.7354 Euros) (Additional reporting by Thomas Escritt in AMSTERDAM; Editing by Edwina Gibbs, Miral Fahmy and Christopher Cushing)

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