Singapore's CapitaLand focuses on Vietnam as supply chains leave China

[Viet]

A rendering of CapitaLand Investment's OMEGA 1 Bang Na automated storage facility in Thailand. The company plans to add industrial assets in the country, Malaysia and Vietnam. (Image courtesy of the company)

SINGAPORE -- Singapore-listed property manager CapitaLand Investment plans to deploy up to $110 million in Vietnam to build or acquire industrial factories, expecting demand from manufacturers following supply chains out of China. The company, backed by state investor Temasek Holdings, expects to add 100 million to 150 million Singapore dollars ($73 million to $110 million) worth of Vietnamese assets to its portfolio over the next two years, according to Patricia Goh, chief executive officer for Southeast Asia investment.

In addition to Vietnam, the company plans comparable investments in Malaysia and Thailand, with ambitions to facilitate a rapid industrialization of the Association of Southeast Asian Nations. Southeast Asia has become a key focus as industries seek to diversify supply chains to ride out U.S.-China trade friction and tepid growth.

"If we think about companies who want to move out of China," Goh mused during an interview with Nikkei Asia, the "logical thinking would be ... Vietnam, especially North Vietnam. Thailand is also quite a favorite destination for some of the investors."

The executive said Chinese textile and garment businesses are eyeing Vietnam as a production locale, while electronics producers, such as those from South Korea, are also looking at the country for manufacturing operations. Anticipating this migration, Goh said the company is shopping for Vietnamese land to build new factories or looking for existing industrial infrastructure to absorb into its portfolio. The plan is to own facilities and lease them to manufacturers.

"Currently in Vietnam, we do not have land banks," she said. "But we at the moment are very actively talking to several industrial park owners [for possible acquisitions] and have identified the land where we would like to plant our flag."

She said CapitaLand Investment is also in "advanced" talks with manufacturers from China to set up new factories in Vietnam as it seeks to secure potential tenants for its future Vietnam properties. According to the company, it already has a large network of potential customers from Chinese markets. In China, where it owns and manages six logistics and 11 business parks, the firm said it has over 7,000 tenants and clients.

The investment plan comes with the company facing challenges in China. Its net profit dropped 79% last year to SG$181 million, mainly due to impairment losses on its China assets due to weaker rents.

As of the end of March, CapitaLand Investment had SG$134 billion of assets under management, with China accounting for 34% and Southeast Asia for 41%. Goh said the company does not plan a specific proportion of ASEAN assets in its holdings but is emphasizing the pursuit of near-term growth in the immediate region.

Goh said that in Malaysia the company expects to deploy around SG$300 million in capital over the next one to two years for industrial, logistics and healthcare assets. Goh floated the possibility of the company getting involved in a special economic zone (SEZ) in the southern state of Johor that the Malaysian and Singaporean governments are jointly developing, although she stressed that her firm is still in the early stages of exploring the feasibility.

"When the SEZ opens up, I think that's another area whereby we will focus and see whether we can build another industrial park," she said. "When the details are out, and where we can see that we have a value-add in it, then we will find a role to play."

Meanwhile, she said SG$350 million might be deployed in Thailand over the next two years, with funds potentially being used to buy land and build logistics assets like warehouses. The country has "already gone through the wave of manufacturing activities," Goh said. "They are now at the stage whereby the warehouses and all that would need modernization."

CapitaLand Investment in February announced its first logistics property project in Thailand, OMEGA 1 Bang Na, an automated storage facility with a gross floor area of 229,000 sq. meters near Bangkok. The company, whose investment plans are running up against today's high financing costs, will combine equity and leverage when acquiring Southeast Asian assets.

The persistently high interest rate environment has not been favorable to real estate managers seeking to grow their portfolios using debt. For CapitaLand, it has meant interest expenses swelling to SG$574 million in fiscal 2023, up from SG$425 million the previous year.

The equity research unit of Singaporean lender Oversea-Chinese Banking Corp. highlighted the elevated expenses in an April report. "Any spike in interest rates could raise the borrowing costs of CLI," the report says. It also mentions "a slowdown in macroeconomic conditions" as another risk facing the Singapore Exchange-listed company.