SM Group of the Philippines sees China as ‘formidable’ market force even amid uneasy ties

The group is looking to ramp up occupancy rates in some of its retail assets and expand the floor space in its flagship shopping mall there, according to a senior group official. The mainland’s 1.4 billion population will be a powerful source of growth, he added.

“Our investments in China have been largely opportunistic,” Franklin Gomez, executive vice-president in charge of finance, said in an interview in Hong Kong on Wednesday. “We have not lost the fact that China has more than a billion consumers and they will continue to be a formidable market force.”

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The Manila-based conglomerate invests on the mainland’s property market through its 49.7 per cent-owned SM Prime, which owns eight malls in lower-tier cities, totalling 17.2 million square feet (1.6 million square metres). The occupancy rate averages about 85 per cent, Gomez said.

China’s post-pandemic recovery has been hobbled by a prolonged property crisis and an underperforming stock market, hurting investment and consumer confidence. The economy grew 4.7 per cent last quarter, slowing from an annual pace of 5.3 per cent in the January-to-March quarter.

Ties between China and the Philippines have been uneasy at best, amid territorial disputes that have dragged on for decades in the South China Sea.

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“It is best left to the experts in our government to find meaningful and peaceful solutions to ease the tensions,” Gomez said. “As far as the business community is concerned, the last thing we need at the moment is big scale disruptions,” he added, noting that it is “busines as usual” for the rest of the country.

Even so, Gomez said the group plans to add about 355,200 sq ft of space this year in SM Laiya, its shopping mall in Xiamen in southeastern Fujian province. The mall, with 1.36 million sq ft of gross retail space, was its first retail foray into China in 2001.

“Some of our malls are at 100 per cent occupancy,” said Gomez, who was in Hong Kong to update investors on its businesses. “We have malls that are two to three years old and we are still ramping up their occupancy levels.”

“Our expansion in China has been very selective,” he said, adding that the country only contributed 3 per cent to the group revenue. “We are not in primary cities, we are in secondary and tertiary cities because that is where we feel we can make a difference. Our malls are profitable. They have healthy occupancy rates.”

SM Investments is the most valuable company traded on the Philippine Stock Exchange, with interests in banking, retail and real estate. The group was founded in 1958 by Xiamen-born billionaire Henry Sy Snr, who passed away in 2019.

The group last month raised US$500 million from an offshore bond offering, which attracted US$1.6 billion of orders from investors. The bond was SM Investments’ largest offshore issue since 2014.