City Developments Limited (CDL) expects to make provisions for a material impairment loss on its Sincere Property stake given the "ongoing unprecedented challenges" facing China's real estate market.
The outcome is based on a review by its appointed external financial adviser Deloitte, which was asked to evaluate its 51 per cent joint venture equity investment in Sincere Property.
Last month, a third director in as many months resigned, citing concerns over CDL's Sincere 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.
CDL's profit guidance yesterday 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 financial performance will be disclosed when the company announces its results for the 2020 financial year, it added.
The group's total investment in Sincere Property stood at $1.8 billion as at Dec 31 last year. It added that it has not provided any further liquidity support or corporate guarantees since.
Apart from challenges arising from the pandemic, CDL said China's rules restricting 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 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."
CDL noted that it has "ring-fenced" its financial exposure to this investment and will continue to "strenuously" protect its position.
It also noted that it has cash reserves of $3.3 billion and a strong liquidity position comprising cash and available undrawn committed bank facilities totalling $4.7 billion.
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.
THE BUSINESS TIMES
- With additional information from The Straits Times