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Here’s why GLP doesn’t need to worry about the slowdown in its China business
It’s well capitalised to face risk, says Fitch.
The slowdown in China may be taking a toll on logistic property developers, but Fitch Ratings insists that Global Logistic Properties doesn’t have to lose sleep over its China business.
According to Fitch, the firm’s China business is well-capitalised to face industry risk, with a loan-to-value ratio of 11% at end-March, and is not yet a key contributor to its operating cash flow.
Additionally, Fitch added that the impact of the firm’s China business is also reducing, as the company continues to grow its global asset portfolio.
Meanwhile, Fitch says the Chinese logistic property market is currently facing overcapacity, and that this can be a serious problem if aggressive investments persist.
“GLP aims to reduce China development starts to USD1.4bn in FY17, from USD1.7bn in FY16, a first time drop in China growth in five years. The company will stop increasing development starts until the Chinese portfolio lease ratio comes back to above 90% (87% in FY16 and 91% in FY15),” Fitch said.
As GLP is the biggest player in the Chinese logistic property market, Fitch said its precautious measures to avoid overinvestment in China may steer smaller players away from irrational competition.
“Furthermore, GLP's business profile is increasingly bolstered by its US asset portfolio, which comprises 36% of its total assets-under-management of USD35bn, up 75% in FY16 from the previous year. GLP US portfolio's assets-under-management already exceeds that of China and is driving GLP's recurring fee-income growth,” Fitch said.
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