One of the first things Masahiro Iwabuchi did after taking the helm at Uni-Asia Group in February last year was to form over half a dozen working groups to review the company’s various business lines and internal processes.
The brief he handed them was a tall order: find ways to improve Uni-Asia’s overall performance and sustain it for years to come. The stakes are high for the shipping and property investment group and maintaining the status quo was simply out of the question, according to Iwabuchi.
For starters, regulations aimed at curbing carbon emissions are piling pressure on ship owners worldwide to upgrade their fleets. Some of Uni-Asia’s wholly-owned dry bulk carriers are more than a decade old and not as fuel-efficient as newer vessels. While it can still fetch decent prices by selling them, buying new carriers to replace older ones will be costly given, among other things, their eco-friendlier engines and features.
This balancing act is further complicated by the economic slowdown in China, a barometer of the health of the global dry bulk shipping market. More recently, the return of Donald Trump to the White House has added yet another layer of uncertainty as the world ponders how his planned tariffs will affect global trade and economies big and small.
In the meantime, the real estate sector in Japan and Hong Kong — two key markets for Uni-Asia — has become harder to navigate.
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Hong Kong’s commercial property market has yet to recover from the aftermath of the 2019–2020 pro-democracy demonstrations. The Covid pandemic and sharply higher interest rates in subsequent years to tame runaway inflation have only made things worse for property investors there. Over in Tokyo, high land costs are making it harder for Uni-Asia to buy even smallish sites to develop into low-storey residential blocks for sale.
Iwabuchi is under no illusion about the challenges facing Uni-Asia and will need all the help he can get to ride them out. As someone who has been with the company since its inception in 1997, he sees himself as a unifier galvanising his over-60-strong workforce spread across Tokyo, Hong Kong and Singapore.
“My work as CEO is to integrate all the goals put forward by the various work groups and get everyone in the company to work together to achieve them,” he tells The Edge Singapore. Previously an executive director of Uni-Asia, Iwabuchi took over the top job from Kenji Fukuyado, who retired last February to spend more time with his family.
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Slightly more than half of Uni-Asia’s assets are shipping-related. As at Sept 30, 2024, these included eight fully-owned dry bulk carriers with an average age of 10½ years. Three of them have a cargo capacity of about 29,000 deadweight tons (dwt) each, while the rest are 38,000 dwt vessels. It also has minority stakes in seven other bulk carriers, which are younger than its wholly-owned vessels.
Average charter rates for all its ships in the first six months of last year fell to US$10,699 ($14,474) per day from US$11,595 in the same period a year earlier. As older carriers tend to be less profitable than newer ones because of issues such as lower efficiency and higher maintenance costs, Uni-Asia intends to dispose of them in due course.
Replacing them will not be easy as prices of newer vessels are steep while newbuilds cost even more, with industry-wide demand outstripping supply. “The cost of brand-new vessels is so high because of the engine configurations that only big ship owners can afford to buy,” Iwabuchi concedes.
Trump and China
The way he sees it, there might be some relief from Trump’s move last month to pull the US out from the Paris Agreement, a landmark treaty on global climate action signed in 2016 by close to 200 countries.
Trump’s executive order for the US to exit the pact, which aims to keep global warming below 1.5°C, could delay or even reduce investments to modernise ageing vessels, he reasons. “It may cause a slowdown in engine transformation for bulk carriers.”
Even so, a bigger pain point awaits the dry bulk shipping market, potentially threatening both freight and charter rates.
“China accounts for more than 50% of the world’s shipbuilding volume. It is building many new vessels, including bulk carriers, container ships and even natural-gas carriers. These vessels will be delivered from 2028. That may cause a surplus of ships globally,” he says.
While it’s too early to tell if there will be enough demand to absorb the impending supply, Iwabuchi figures Uni-Asia has a window of about three years to make the most of what’s on hand before any major mismatch hits the dry bulk shipping market.
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For now, the company is pushing ahead with its fleet expansion plans, albeit somewhat guardedly. It secured shareholders’ approval at an EGM last month to buy one of the dry bulk carriers in which it has a minority stake for a sum of US$22.7 million. The acquisition, still ongoing, is carried out through a 75:25 joint venture with a Japanese ship owner. One of Uni-Asia’s subsidiaries is the larger shareholder.
The target is the Hong Kong-flagged M/V Kellett Island, a 57,836 dwt vessel built in January 2015 with better fuel efficiency than standard dry bulk carriers. The carrier has been profitable since being in service from 2015, except for the period from 2019 to 2021, when the entire market was in a downturn because of the pandemic.
Diverging fortunes in real estate
While demand for dry bulk shipping has rebounded, the same can hardly be said for real estate in Hong Kong, where Uni-Asia has been invested since 2010.
The company has so far invested in eight Hong Kong commercial property development projects comprising office and industrial buildings. It typically works with a Hong Kong developer, which is also the main investor for all the eight projects, by taking a minority stake in each development.
Uni-Asia’s first three projects in Hong Kong were a roaring success. Its combined investment outlay of US$17.5 million for these three developments yielded total sales proceeds of US$42.7 million, giving it a US$25.2 million profit.
The remaining five projects — three office buildings and two industrial complexes — are doing less well, mirroring the state of Hong Kong’s commercial property market, which remains bogged down by high interest rates and a vacuum left behind by the departure of many global firms following the pro-democracy protests.
Uni-Asia has already incurred fair-valuation losses on some of these remaining projects and has said it might not be able to recover its invested capital if current market conditions, including China’s slowing economy, persist.
“It is very difficult for us to further invest in Hong Kong,” says Iwabuchi. “I’m not saying we give up everything in Hong Kong, but we need to reconsider our business strategy.”
Fortunately for Uni-Asia, Japan’s real estate market is more promising. Besides residential projects in Tokyo, the company also invests in other property asset classes, including hospitality and healthcare. Collectively, it had JPY43.3 billion ($390 million) in real estate assets under management in Japan as at Sept 30, 2024, up from JPY39.9 billion for the whole of 2023.
Shared living facilities designed to provide community-based care for the disabled — better known in Japan as group homes — have become the fastest-growing property asset class for Uni-Asia.
The company set up a dedicated fund in 2021 to develop five group homes, all of which have since been completed and sold. The internal rate of return for each of its group home projects is more than 10%, according to Iwabuchi.
Toward the end of last year, Uni-Asia was tasked to manage 20 group homes across eight prefectures in Japan under a JPY3 billion social project bond started by Barclays Securities. Social project bonds typically appeal to investors looking for financial returns with measurable social impact.
Another space Uni-Asia has been making progress in is so-called private finance initiatives (PFIs), which are akin to what is known in Singapore as public-private partnerships.
Last October, the company secured its third PFI project in Japan — to demolish an old public works facility in Kawasaki City in the Kanagawa prefecture and build a new one in the same location that will include heated public pools and other community amenities. A consortium led by a Uni-Asia subsidiary will operate the facility and earn recurring management fees for 20 years once it is completed in 2029.
“Big developers don’t want to do such projects, but there is demand from the regional governments in Japan,” says Iwabuchi. “We are the lead arranger for such projects. We get the various stakeholders together, including contractors and builders, to work on the development. We ourselves are asset-light and our risks are minimal.”
As for its Tokyo-focused boutique residential development business, which operates under the Alero brand, Uni-Asia may consider keeping some completed units to rent out for recurring income instead of selling them en bloc as it usually does.
It typically buys small land parcels in Tokyo to develop into four- to five-storey buildings with up to 30 studio apartments or maisonette flats. In the first nine months of last year, it embarked on nine new projects and completed four. Another 16 are existing projects and still being developed.
“It is quite difficult to launch new Alero projects as land prices and construction costs are high,” Iwabuchi says.
The average period of time taken to acquire, develop and sell an entire Alero project has also gone up from about a year to between 18 and 24 months. This increase stems in part from changes to Japanese labour laws last year aimed at improving work-life balance and helping workers cope with inflation.
Of the various challenges on hand, uncertainty over what Trump might have up his sleeves is probably the most worrying as it impedes progress, says Iwabuchi. Even so, he believes such apprehension should dissipate soon.
“Many people have been gazing for the first two months of this year at what Trump will say and do. But after maybe a few more months, people will get used to Trump’s policies and will resume their business. They cannot wait for a year or two years.”
