CDL flags 'material impairment loss' on Sincere Property investment

CDL's total investment in Sincere Property stood at $1.8 billion as at Dec 31, 2020.
CDL's total investment in Sincere Property stood at $1.8 billion as at Dec 31, 2020.PHOTO: CDL

SINGAPORE (THE BUSINESS TIMES) - City Developments Limited (CDL) is expecting to make provisions for a material impairment loss on its investment in Sincere Property, given the "ongoing unprecedented challenges" facing China's real estate market, the mainboard-listed company said on Thursday (Jan 21).

This is based on a review by CDL's appointed external financial adviser, Deloitte, which was asked to evaluate its 51 per cent joint venture equity investment in Sincere Property, the property developer said in a profit guidance for the full year ended Dec 31, 2020.

Last month, a third director in as many months resigned, citing concerns over CDL's Sincere Property investment. The departures began with Mr Kwek Leng Peck, the cousin of CDL chairman Kwek Leng Beng, who quit after more than 30 years in the role.

In its profit guidance, CDL said: "The final quantum of impairment cannot be determined as yet, as the group is in the process of restructuring some assets and the situation remains fluid."

Details of the group's financial performance will be disclosed when the company announces its results for financial year 2020, it added.

CDL said it is finalising the completion of the audit of Sincere Property. The review by Deloitte has been calibrated with the preliminary findings from the audit of Sincere Property as at April 30, 2020, by KPMG, and the draft purchase price allocation exercise undertaken.

The group's total investment in Sincere Property stood at $1.8 billion as at Dec 31, 2020. It added that it has not provided any further liquidity support or corporate guarantees to Sincere Property since.

Apart from challenges arising from the pandemic, CDL said China's "three red-lines" rule - which restricts bank borrowing for real estate firms - is expected to have a significant impact on all Chinese developers.

"The deterioration in market conditions, ongoing uncertainty and regulatory restrictions have disrupted and negatively impacted Sincere Property's operations and performance in the near term," CDL said.

"Furthermore, poor market conditions have derailed the intended divestment plan for some of Sincere Property's retail and hospitality portfolio to reduce its debt, exacerbating the liquidity challenge it currently faces," it added.

CDL noted that it announced on Jan 4 the formation of a special working group to directly oversee and improve Sincere Property's liquidity and profitability, including reviewing potential divestments of assets and restructuring existing liabilities while limiting any additional financial exposure to the group.

It said it has "ring-fenced" its current financial exposure to this investment and will continue to "strenuously" protect its position.

CDL's net gearing ratio, factoring in revaluation surplus from investment properties, stood at 52 per cent as at Sept 30, 2020, the company said, adding that it has strong cash reserves of $3.3 billion.

It also maintains a strong liquidity position comprising cash and available undrawn committed bank facilities totalling $4.7 billion, it said. Its debt expiry profile remains healthy, with total gross borrowings at a weighted average debt expiry of 2.4 years.

CDL said there are no material concerns over its ability to fulfil its near-term debt obligations. However, it advised shareholders and potential investors to exercise caution when dealing or trading in the securities of the company.

With additional information from The Straits Times