CapitaLand May Tie Up With Wal-Mart, Other Retailer in Japan

CapitaLand May Tie Up With Wal-Mart, Other Retailer in Japan

Aug. 26 (Bloomberg) -- CapitaLand Ltd., Southeast Asia's largest property developer, may tie up with Wal-Mart Stores Inc. or another retailer in Japan to speed up expansion of its business in the country, said Liew Mun Leong, chief executive of CapitaLand.

CapitaLand, which partnered with Wal-Mart in acquiring 15 retail malls in China this year, may form alliances with retail chains in Japan to expand at a faster pace, Liew said in an interview in Tokyo.

``Most malls are owned by retailer chains in Japan. Now they've realized that it's not cost effective for them to own their malls,'' said Liew. ``Wal-Mart is very concentrated on retail, not on the real estate, so if there is an opportunity, we will definitely look into it.''

CapitaLand has two real estate funds in Japan as part of an overseas expansion into real estate in China and Australia. Real estate prices in central Tokyo rose for the first time last year as the country's economy, the world's second largest, expanded at an annual 1.1 percent in the second quarter, the third straight quarter of gains.

The Topix real estate index rose 15 percent this year, outperforming the Topix's 10 percent gain. The Tokyo Stock Exchange REIT index has risen 7.6 percent.

``Japan is firmly on a recovery trend. We think it is the right time to go into property fund management in Japan as property prices are recovering,'' said Liew.

REIT Listing

CapitaLand said it may list a real estate investment trust in Japan or Singapore in the next 2 to 3 years when the size of the trust reaches $300 million to 400 million. The listing may also happen in China and Malaysia, he added.

``The appetite for REITs in Asia is very big,'' said Liew. ``The ideal plan is whenever we package funds, we can place them into REITs.''

CapitaLand has a 45 billion yen ($408 million) fund focusing on retail properties in Japan and forecasts it may grow to 150 billion yen in the next three years. It is close to buy its third mall in Japan.

The company also has started a $300 million residential fund in Japan with Bahrain's Arcapita Bank BSC that is compliant with Islamic law, aiming to tap a growing overseas market for Islamic banking.

``Raising funds is not a problem,'' said Liew. ``Islamic funds are very strong. The challenge is to be able to buy good portfolio of rental apartments because projects in Japan are not large.''

The Singapore Property equities index, which consists of 21 companies, has risen 27 percent this year, beating an 11 percent return from the Straits Times index.

CapitaLand's overseas investments, led by Australia and China, made up 51 percent of its total assets and contributed 67 percent of pretax profit.

Wal-Mart

The possibility of CapitaLand working with Wal-Mart in Japan as well as China, follows speculation the U.S. retailer may buy control of Tokyo-based Seiyu Ltd. Wal-Mart, the biggest shareholder in Seiyu, has an option to raise its Seiyu stake to more than 50 percent from 42 percent by the end of this year.

``The fact they increased to 42 percent was a major step towards Wal-Mart's commitment to Seiyu and to the Japanese retailing market,'' said Peggy Furusaka, co-head of credit research at BNP Paribas Securities in Tokyo.

Seiyu's net loss widened to 2.5 billion yen in the three months ended June 30 from 1.86 billion yen in the same period a year earlier.

Seiyu, which is expecting a third straight year of net losses, is receiving management assistance from Wal-Mart, the world's largest retailer. The company's decision to raise it's stake in Seiyu added to speculation Wal-Mart may buy control of the Japanese retailer. Both companies last week said no decision has been made on that.

``They were giving themselves three years to see whether they would succeed in Japan or not,'' Furusaka said last week in response to questions about Wal-Mart's intentions.

``They maintained their stake of less than 20 percent in Seiyu for three years. If they were to pull out, they would have pulled out already.''

To contact the reporter on this story:
Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: August 25, 2005 21:50 EDT