Pressure is mounting on an heir to Singapore’s biggest family fortune as he seeks to salvage the troubled property investment at the center of an ambitious expansion into China.
In the past month, Sherman Kwek, the 45-year-old chief executive officer of City Developments Ltd., has had to contend with two more board member resignations, taking the total to three since October. His firm set up a special team to decide on the sale of assets at its joint venture with Sincere Property Group, the Chinese developer that’s driven a rift in the family, and to look at restructuring its liabilities. His father, CDL’s executive chairman, came out to defend the investment.
It’s the biggest challenge yet for Kwek, who’s been at the helm for three years and spearheaded the Sincere deal in 2019. With its pipeline of 64 projects and sizable land bank, the developer increased CDL’s presence in China to about 20 cities from three and was touted as “game changing” for growth. But the coronavirus pandemic and tighter borrowing rules governing real estate firms in the country have instead forced losses on the Singaporean company.
“Sherman will have to engage with investors and show that he can deliver to convince them that he’s the right person to lead the company,” said Mak Yuen Teen, associate professor of accounting at the National University of Singapore. “The Sincere investment is probably a make or break deal to either cement his role or to call for change in leadership.”
Trouble started with Covid-19, which brought much of China’s economic activity to a halt at the start of 2020. Most of Sincere’s projects were put on hold or delayed, and CDL renegotiated the terms of its joint venture in April, effectively giving the firm a big valuation discount. China’s “three red lines” policy to rein in leverage in the sector only added to the woes, spelling the end of the fast growth seen in previous years and increasing liquidity constraints at Sincere, which is now seeking to accelerate asset sales.
Through September, CDL lost S$76 million ($57 million) on the investment last year. While the company hasn’t announced its results for the period, CDL has said revenue at its property-development segment dropped 15%.
Sherman Kwek
Now the onus is on Sherman Kwek to turn the situation around.
The Boston University graduate joined CDL in 2010 as CEO of its new China subsidiary, taking responsibility for leading the firm’s expansion there. He got promoted to the head of Singapore’s second-largest listed developer in 2018.
Since then, many initiatives have happened under his watch. He engineered the privatization of Millennium & Copthorne Hotels Ltd., the hotel operator that also prompted reservations from his uncle Kwek Leng Peck and helped motivate his resignation from CDL’s board in October. He established a fund-management division, increased CDL’s stake in a Singaporean real estate investment trust and created a commercial REIT of U.K. office properties.
But Sincere remains central to Sherman Kwek’s success and is to this date CDL’s largest single investment in China.