City Developments Limited (CDL) is acquiring a 51.01 per cent stake in a Chinese developer for 4.39 billion yuan (S$880 million).
Part of the transaction involves a call option that CDL can exercise to buy an additional 9 per cent interest in the firm for 0.77 billion yuan at the same entry valuation.
This will allow CDL to acquire a 60.01 per cent stake in the firm - Sincere Property Group - for a total of 5.16 billion yuan.
"Given the adverse impact of the Covid-19 crisis and the global uncertainty, CDL has taken the opportunity to negotiate new terms for its investment into Sincere Property, which are significantly improved over the terms announced last year," said CDL in a statement to the Singapore Exchange after the market closed yesterday.
CDL had said in May last year that it would acquire a 24 per cent stake in Sincere for 5.5 billion yuan.
The investment was to be split equally into two tranches - a four-year interest-bearing loan of 2.75 billion yuan and a tranche of 2.75 billion yuan.
The second was to have been invested once certain conditions were fulfilled.
The deal was not completed by the fourth quarter last year as expected "due to a variety of factors", said CDL.
Sincere will use part of the 4.39 billion yuan to repay a loan extended earlier to it by CDL.
Once the deal is completed, CDL will hold a joint controlling interest in Sincere through an offshore investment vehicle.
Sincere chairman Wu Xu's stake will fall from 60 per cent to 29 per cent, while Chinese developer Greenland Holdings Group's holding will halve from 40 per cent to 19.99 per cent.
The new transaction values Sincere at 8.6 billion yuan, almost 50 per cent below its net asset value of 16.48 billion yuan as at its unaudited consolidated financial statements for the year ended Dec 31, 2019.
The deal will lift CDL's portfolio allocation in China from 13 per cent to 17 per cent with its presence growing from three cities to 18.
It will also broaden its capabilities across property segments to include new asset classes such as business parks.
The deal gives CDL access to Sincere's development land bank of 9.2 million sq m, with 64 development projects across mostly Tier 1 and 2 cities in China.
Sincere also has a portfolio of 27 investment properties in the retail, office and hospitality segments.
THE BUSINESS TIMES