Investment in the Logistics Sector through M&A

Investment in the Logistics Sector through M&A Malaysia, Indonesia, Singapore and Vietnam

18 April 2017

Agenda

1 Overview of logistics sector xx

2 Deal Structure and Common

Challenges

3

Regulatory Regime

- Malaysia

- Singapore

- Indonesia

- Vietnam

xx

4 Trends and recent deals xx

5 Q&A xx

1 Overview of logistics sector

© 2017 Wong & Partners

Overview – Logistics Industry

• Industry predicted to register (i) growth in 2017, and (ii) overall positive growth in the long term up till 2021 for Indonesia, Malaysia, Singapore and Vietnam

• Growth drivers

• Growth of e-commerce industry

• Globalisation

• Efficient supply chain

• Malaysia, Indonesia and Vietnam

• Ranked 4, 6 and 19 in the Agility Emerging Markets Logistics Index 2017 respectively

Source: BMI Research (January 2017) and Agility (2017)

2 Deal structure & Common challenges


Deal structure

6

‒ complexity/deal efficiency

‒ tax planning

‒ transaction costs

Shares or assets

‒ separate asset shares transfers

‒ employee "transfers"

‒ third party approvals/consents

‒ permits and licences/approvals

‒ assignment/novation of contracts

‒ real estate ownership issues

‒ taxation

Shares more common than assets

‒ VDRs

‒ Q&A

‒ Access to target's management

Due diligence – never too much DD

Regulatory/FDI approvals

Exclusivity periods/Auction processes

‒ cash

‒ shares

‒ promissory notes

‒ earn-outs

‒ deposits?

‒ break fees

‒ retentions

‒ escrow

arrangements

‒ stakeholder

payments

Consideration

‒ term sheets

‒ Letters of intent

‒ MOUs

‒ Heads of

Agreement

‒ SPA

‒ APA

‒ Disclosure letters

‒ Indemnities

‒ Transitional

Services

Agreements

‒ Licence

Agreements

Documentation


Common Challenges

• Regulatory approval / Foreign ownership restrictions

• Licences

• Real property

• Employment

• Asset deal – vs – Share deal

• Unions / Collective bargaining agreements

• Merger control

• Exchange control

3 Regulatory regime

3a Malaysia


Malaysia

10

Licences/Permit/

Approval

Permitted activities Equity Conditions

Ordinary warehouse

licence

Ordinary warehousing services None

Private bonded

warehouse

Central storage and distribution

centre for bonded goods (i.e. goods

on which Customs duties and taxes

have not been paid), of the

companies and its related companies.

None

Public bonded

warehouse

Central storage for the distribution of

bonded goods

Minimum of 30%

Bumiputera equity

Cold chain facilities

licence

Cold room, refrigerated truck and

other related services such as the

collection, storage and

distribution of perishable local

agricultural produce.

None

Licences/Permits/Approvals


Malaysia (cont)

11

Licences/Permit/

Approval


Freight Forwarding

Agent/Customs

Agent Licence

Act as an agent for transacting

business relating to the import or

export of any goods or luggage

Minimum of 51 %

Bumiputera

participation on

share capital,

management and

employees.

Shipping Agent

Licence

Act as an agent for transacting

business relating to the entry or

clearance of any vessel or aircraft

Minimum of 30 %

Bumiputera

participation on

share capital,

management and

employees.



Malaysia (cont)

12

Licences/Permit/

Approval


Carrier Licence A

Provision of transportation services to

third parties using commercial

vehicles

Minimum of 51%

Malaysian equity

(of which, 30%

equity must be held

by a Bumiputera)

Carrier Licence C

Provision of transportation services

for own use with commercial vehicles

None



Malaysia

13

Incentives Exemption Equity Condition

Pioneer Status

Tax exemption of 70% of the statutory

income for a period of five (5) years

Maximum of 40%

foreign equity

Investment Tax

Allowance

ITA of 60% on the qualifying capital

expenditure incurred within a period of five

(5) years. The allowance can be offset

against 70% of the statutory income for

each year of assessment. Unutilised

allowances can be carried forward to

subsequent years until fully utilised.

Maximum of 40%

foreign equity

Integrated

Logistics

Services (IILS)

Status

Issued the Freight Forwarding

Agent/Customs Agent licence by the Royal

Malaysian Customs Department upon

approval.

None

Incentives

3b Indonesia


Indonesia

15

Licences/Permit/

Approval


Business license

(for freight

forwarding)

Performance of cargo delivery and

receipt by land, railway, sea and air

transportation

Maximum of 67%

foreign equity

Registration with the

Minister of

Transportation and

relevant authorities

Carrying out freight forwarding

business.

None



Indonesia (cont)

16

Licences/Permit/

Approval


General goods

transportation

through land, sea or

air licence

Various activities set out in the

Indonesian Classification Code (KBLI)

Maximum of 49%

foreign equity

Warehousing

licence

Temporary storage before the goods

are couriered to the final destination

for commercial purposes.

Maximum of 67%

foreign equity



Indonesia

17

Incentives Exemption Equity Conditions

Bonded Logistic

Centre

Postponement of import duty, non-

collection of VAT and exemption from

exise duty

None

Incentives

3c Singapore


Singapore

19

Licences/Permit/

Approval


Licenced

Warehouse Scheme

Storing imported dutiable goods with

duty and Goods and Services Tax

(GST) suspended

None

Zero-GST

Warehouse Scheme

Storing of imported non-dutiable

goods for an indefinite period of time

with GST suspended

None

Strategic Goods

Permit

Transfer or brokering of strategic

goods and related technology listed in

the Strategic Goods Control List (i.e.

certain military goods)

None



Singapore

20


Certain Economic

Development Board

(EDB) tax incentives

may be applicable

A company may apply for certain tax

incentives if they are eligible. For

example, the Pioneer Certificate

Incentive (PC) and Development and

Expansion Incentive (DEI) is aimed at

companies to grow capabilities and

expand economic activities in

Singapore. The tax incentive granted

will be largely dependent on the

proposal a company presents to the

EDB

There may be

certain conditions

set by the EDB,

which can vary with

each grant of a tax

incentive. Again, it

depends on the

proposal of the

company

Incentives


Singapore (cont)

21


Marine Sector

Incentive –

Shipping-Related

Support Services

(MSI-SSS)

Eligible companies will have a

concessionary tax rate of 10% on the

incremental income derived from the

provision of freight forwarding and

logistics services for a period of 5

years

None

Incentives

3d Vietnam


Vietnam

23

Licences/Permit/

Approval


M&A Approval Acquisition of shares/capital in a

Vietnamese logistics company by a

foreign investor

None

Registration of

“Goods

Loading/Unloading”

business lines

Loading and unloading of goods Maximum of 50%

foreign equity.

Registration of

“Warehouse”

business line

Warehousing services None



Vietnam (cont)

24

Licences/Permit/

Approval


Certificate of

aviation services for

airdrome/airport

service business

Includes warehousing services at

airdrome/airport

Foreign capital must

not exceed 30% of

Charter Capital.

Minimum capital

requirement of VND

30 billion.

(approximetly USD

1.3 million)

Registration of

“Freight transport

agency” business

lines

Freight transport agency services No equity conditions

but JV with domestic

partner required



Vietnam (cont)

25

Licences/Permit/

Approval


Registration of

internal waterways

goods transportation

services business

lines

Internal waterways goods

transportation

Maximum of 49%

foreign equity.

Maritime

Transportation

License

Provision of maritime transport

services including cabotage services

by Vietnamese flagged vessels for

the supply of integrated transport

services

International

transportation:

Minimum capital of

VND20 billion (USD

878 thousand

Domestic

transportation:

Minimum capital of

VND5 billion (USD

220 thousand)



Vietnam (cont)

26

Licences/Permit/

Approval

Permitted

activities

Equity Conditions

Certificate of

aviation

transportation

Passengers,

luggage,

goods, post

transportation

by airways

• Maximum of 30% foreign equity.

• Majority charter capital must be held by

a Vietnamese shareholder.

• Domestic transportation: Minimum

capital of VND300 billion (USD13.2

million) to VND700 billion (USD30

million)

• International transportation: VND700

billion (USD30 million) to VND1300

billion (USD57 million).

(Amount of capital required varies

depending on the number of aircrafts)



Vietnam (cont)

27

Licences/Permit/

Approval


License for

Transportation by

Automobile

business

Good transportation by

automobile

Maximum of 51% foreign

equity

Registration of

“good transportation

by railway” business

line

Good transportation by railway

Maximum of 49% foreign

equity

Postal License Accept, transport and deliver

postal articles by various

modes other than electronic

modes from the place of the

sender to the place of the

recipient through the post

network

Domestic poastal:

Minimum capital

requirement of VND2

billion (USD87 thousand)

International poastal:

Minimum capital

requirement of VND5

billion (USD220 thousand)



Vietnam (cont)

28

Licences/Permit/

Approval


Registration of

“Other supporting

and auxiliary

transport services”

business line

Freight brokerage services; bill

auditing and freight rate information

services; transportation document

preparation services; packing and

crating and unpacking and de-crating

services; freight inspection, weighing

and sampling services; and freight

receiving and acceptance services

(including local pick-up and delivery)

No equity

conditions but JV

with domestic

partner required

Registration of

“Container handling

services” business

line

Container handling services, except

services provided at airports

Maximum of 50%

foreign equity



Vietnam

29


Import tax

incentives

Import tax exemptions for goods used

to create fixed assets for logistics

centres and warehouses

None

Non-agriculture land

usage tax waiver

50% waiver for non-agriculture land

usage tax and logistic centers and

warehouses

100% waiver for non-agriculture land

usage tax and logistic centers and

warehouses located in areas with

harsh socio-economic conditions

None

Incentives

4 Recent deals & Current trends


Recent deals

31 Wong & Partners |

Malaysia

‒ World Freight Company International (WFC)

acquired an undisclosed controlling stake in ABDA

Aviation Sdn. Bhd.

‒ CJ Korea Express Corporation acquired a 31.44%

stake in Century Logistics Holdings Berhad

‒ TASCO Berhad acquired Gold Cold Transport Sdn.

Bhd. and Mils Cold Chain Logistics Sdn. Bhd.

Indonesia

Singapore

‒ Singapore Post Limited acquired 37.5% stake in

Famous Holdings Pte Ltd.

‒ Navig8 Group to acquire RKOffshore Management

Pte Ltd

Vietnam

‒ SG Holdings Co., Ltd agreed to acquire Phat Loc

Express and Trading Joint Stock

‒ Vietnam-based PE fund acquired a minority stake in

Maritime Logistics Company

‒ KLN Singapore Pte agreed to acquire 15% stake in

Puninar Jaya PT for a consideration of USD 16m.

‒ Deutsche Bank AG has acquired a 14.79% stake in

PT Buana Listya Tama Tbk from P.T. Berlian Laju

Tanker Tbk.


Current trends – Latest News

32

• Jack Ma appointed adviser to Malaysian Government

• Involvement of Alibaba Group and affiliated companies

• Develop regional e-commerce and logistics hub in Kuala Lumpur, Malaysia

• Part of Electronic World Trade Platform (eWTP) + 1st eWTP-hub outside China

• Logistics hub to function as: (i) centralized customs clearance, (ii) warehousing and (iii) fulfilment facility, for Malaysia and the region

• MOU signed between Alibaba’s logistic affiliate Cainiao Network and Malaysia Airports Holdings Berhad (MAHB)

Malaysia


Current trends

33 Wong & Partners |

Malaysia

‒ 2017 forecasted as good trade year for Malaysia due

to gradual improvement in world merchandise trade

volume on the back of sustained global growth and

resilient demand for E&E goods and a recovery in

commodity exports

‒ Total trade will increase by 4.1% in 2017 with imports

forging ahead of exports

Indonesia

‒ Indonesia's real trade growth forecasted to grow by

3.5% in 2017

‒ The largest port in Indonesia, Tanjung Priok, is set to

see growth of 4.4% and tonnage growth of 3.6%

Singapore

‒ Total trade real growth in 2017 will be 2.4% growth

expected to average 3.1% over the medium term

(2017-2020)

Vietnam

‒ Vietnam's trade volumes were boosted by a free

trade agreement struck with South Korea in 2015,

with South Korean shipments to Vietnam from

January to October 2016 rising by 12% compared to

the corresponding period in 2015

‒ Vietnam expected to see a rapid rise in investment

by South Korean electronics firms and this will entail

the movement of finished goods and parts by

containers.

Source: BMI Research (January 2016)

5 Q&A

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Ee Von Teo

Partner

Kuala Lumpur

[email protected]

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Documents

Investment in the Logistics Sector through M&A