CDL's Sincere unit in China may undergo court-led restructuring

CDL CEO Sherman Kwek had vowed not to inject further funds until the unit returned to health.
CDL CEO Sherman Kwek had vowed not to inject further funds until the unit returned to health.PHOTO: CITY DEVELOPMENTS LTD

BEIJING (BLOOMBERG) - Chongqing Sincere Yuanchuang Industrial, a cash-strapped Chinese developer owned by Singapore's richest property family, may undergo a court-led restructuring after a bankruptcy application was filed against it, according to sources familiar with the matter.

Sincere Property Holdings, the second-largest shareholder of Chongqing Sincere, is preparing to work with stakeholders and creditors on a restructuring of the builder, said the sources, asking not to be identified discussing private information. City Developments Ltd (CDL), owned by the billionaire Kwek family, has a 51 per cent stake in the developer.

A Beijing-based creditor of Chongqing Sincere submitted a bankruptcy petition against the company to the No 5 Intermediate People's Court in Chongqing, according to a July 5 filing posted on the National Enterprise Bankruptcy Information Disclosure Platform.

If the local court accepts the application, a formal process would be triggered leading to either restructuring or liquidation, or a settlement between creditors and the company.

The case is still at an application stage, Chongqing Sincere said in a written reply to Bloomberg, adding that it does not affect business in its subsidiary property projects. Sincere Property Holdings said it respects credit holders' wishes and its other businesses remain normal. Representatives for CDL were not immediately able to comment.

CDL shares were down 11 cents, or 1.6 per cent, at $6.90 at the midday break on Thursday, after news of the potential restructuring.

A restructuring would close a painful chapter for CDL, which posted a record annual loss last year after writing off almost all of its $1.9 billion investment in Chongqing Sincere. CDL chief executive Sherman Kwek once hailed the 2020 deal as "game-changing" before vowing not to inject further funds until the unit returned to health.

As the “bleeding” in Sincere may stop soon, investors may see long term value in CDL, said Justin Tang, the head of Asian research at United First Partners in Singapore. “The restructuring is a right step toward a resolution of this, be it via liquidation or sharing the pain among the company and creditors.”

Chongqing Sincere missed payment on a local bond that matured in March, and blamed CDL's delayed decision making for hurting its ability to improve cash flow. The Chinese firm had no concrete plans to raise funds for outstanding principal, Mr Zhao Dongmei, chief financial officer of shareholder Sincere Property Holdings said in a March interview. It has missed subsequent onshore bond payments.

In a business update in May, CDL said Sincere still faces liquidity challenges and is working to speed up collections, asset sales and divestments to raise funds. Much work is ongoing amid China's measures to cool the real estate sector, the Singapore firm said.