While the Singaporean company didn’t disclose its strategy to resolve the issues at the joint venture, a media representative said the firm is focused on preserving and enhancing shareholder value, adding that “the team has been working diligently on issues relating to Sincere and the challenges it faces.”
In a letter sent to local media editors earlier this month, CDL Executive Chairman Kwek Leng Beng called the recent departures an opportunity to renew its board and said the Sincere investment had to be viewed “against the backdrop of a fast-changing business environment, made even more challenging by the global pandemic.”
Sincere, which didn’t respond to requests for comment, is part of Chongqing Sincere Holding (Group) Co., a conglomerate that manages more than 200 billion yuan ($31 billion) in some 20 Chinese cities. Before the Kweks went for it, the property unit had attracted other investors, including some of China’s biggest developers -- like China Evergrande Group, Sunac China Holdings Ltd. and Jinke Properties Group Co. -- but they all abandoned the idea, according to local media.
Billionaire Friends
Still, Sincere was able to establish partnerships with several companies with links to some of the region’s billionaires, such as Thailand’s richest family, the Chearavanonts, Taiwan’s Samuel Yin and Chinese mining tycoon Wang Wenyin.
By the time Sherman Kwek signed the first deal in May 2019, he had known Sincere’s chairman and founder, Wu Xu, for about a decade. Wu made about 2.7 billion yuan by offloading part of his ownership when the terms were renegociated in April, valuing his firm at 8.6 billion yuan, according to Bloomberg estimates. Another investor, Greenland Holdings Group Co., also went for the exit last year, selling 20% of the stake it acquired in 2016, which at the time gave Sincere a 12.5 billion valuation.
Chinese developers have all been hit badly from the coronavirus crisis and new government restrictions on borrowing, and sales at debt-ridden firms could suffer further in the mid term, according to a Bloomberg Intelligence report. Now CDL will have to make a strong push to divest more of Sincere’s properties to improve its liquidity and revamp its operations, according to Justin Tang, the head of Asian research at United First Partners in Singapore.
“Sincere provided a platform for City Developments to quickly gain scale in China. It didn’t look too bad a decision back then,” said Bloomberg Intelligence analyst Kristy Hung, who attributed the growing challenges to China’s new leverage rules. “The regulatory tone is increasingly negative for Chinese developers’ growth, hence adding uncertainty to Sincere’s profit contribution to CDL.”
This article was provided by Bloomberg News.