SINGAPORE - City Developments Ltd (CDL) on Monday afternoon (Jan 4) announced that it had set up a special working group to improve the liquidity and profitability of its investment in Sincere Property Group following the resignations of three directors in three months.
They included the long-serving cousin of billionaire executive chairman Kwek Leng Beng.
CDL said it also aims to limit any additional financial exposure to the China-based real estate group and will include a review of potential divestments of Sincere's assets and restructuring of its existing liabilities.
CDL's investments in Sincere totalled about $1.9 billion, the company said in October. These include 4.39 billion yuan (S$895 million) for a 51 per cent joint venture equity stake in April 2020. CDL also subscribed for US$230 million (S$303 million) worth of bonds issued by Sincere, and provided a working capital loan of 650 million yuan.
Concerns over CDL's investment in Sincere were cited as reasons behind the resignations of independent non-executive directors Tan Yee Peng on Dec 30 and Koh Thiam Hock on Dec 28, and former non-executive and non-independent director Kwek Leng Peck in October.
Prior to his abrupt resignation, Mr Kwek, 64, the chairman's cousin and uncle of group chief executive Sherman Kwek, had served on the board for more than 30 years.
Among reasons cited by Mr Kwek for his departure were "disagreements with the board and management in relation to the group's investment in Sincere Group and its continuing provision of financial support to Sincere".
Ms Tan, 47, also "disagreed with the board and management about the handling of the investment after the acquisition". She resigned after more than six years in the role, CDL announced on Monday morning. Her departure follows that of Mr Koh, 70, who resigned after "having shared his observations, concerns and suggestions on the group's investment in Sincere."
In an earlier filing in October, CDL noted that the liquidity position at Sincere is challenging, being severely impacted by the Covid-19 pandemic and property cooling measures which caused further tightening of liquidity for real estate companies in China, the most recent being China's three "red lines".
These red lines refer to thresholds on debt that developers must meet if they want to refinance.
"The intended asset divestment plan for some of Sincere's retail, hospitality, office and business parks assets to lighten its debt load on investment properties exposure... and to shore up its residential development plans... is now expected to take longer due to the current climate," CDL had said.
The set-up of the special working group follows the completion of a review of CDL's investment by its external financial advisor Deloitte & Touche Financial Advisory Services.
The review identified major bank loans and non-trade liabilities maturing between end-2020 and 2021 which require debt restructuring.
Sincere has started negotiations with certain major lenders and is awaiting approval, CDL said.
The board has also decided to engage Deloitte China to assist CDL's special working group, comprising a cross-section of internal expertise across divisions. The special working group, which will evaluate options to improve Sincere's liquidity, is led by Ms Goh Ann Nee, chief transformation officer in the executive chairman's office.
CDL executive chairman Kwek Leng Beng said: "The CDL special working group will accelerate efforts to work closely with Sincere to improve its liquidity and profitability while limiting any additional financial exposure to the group.
"Notwithstanding the liquidity challenges, Sincere remains a platform for future growth in the Chinese market because of its real estate footprint across China," he said.
As at the date of the review by Deloitte, Sincere has over 314 legal entities and 71 projects in 18 cities totalling around 8.6 million sq m. They comprise: hotels and serviced apartments (174,000 sq m); commercial and office buildings (2.7 million sq m); business parks (2 million sq m); and residential projects (3.7 million sq m).
In its review, Deloitte had allocated the 71 projects into three categories: those that are profitable and generating positive cash; those that can be divested to improve liquidity; and those that need further detailed review to identify feasible options to improve profitability.
CDL shares closed at $7.80 on Monday, down 17 cents or 2.1 per cent.
