CDL Strikes Back After Chinese JV Partner Questions Decision-Making

A war of words is brewing after Singapore-based City Developments Ltd clapped back against what it termed incorrect information issued by its joint venture partner, Chinese developer Sincere Property Group.

CDL’s response on Thursday came a day after Sincere released a statement asserting that a delay in decision-making by “the controlling shareholder” — apparently meaning CDL — had “seriously affected the timely implementation of financing and asset disposal to improve company operations and cash flow”.

In a filing with the Singapore Exchange, CDL said it was “deeply concerned” that Sincere had issued a statement containing “incorrect information about CDL, in a way which could mislead readers to believe CDL should take primary responsibility for the current situation of Sincere Property”.

CDL said Sincere’s statement was issued without any prior consultation with the SGX-listed developer. Singapore’s largest non-government-controlled developer has already been forced to write down more than $1.3 billion on its investment in its mainland partner, with Sincere now lashing out as it struggles to remain solvent.

Clearing the Err

In its return of serve, CDL sought to clarify two main points where it said Sincere had erred.

First, CDL disputed Sincere’s characterisation of CDL as the controlling shareholder of Sincere Property Group, saying CDL in fact holds a joint controlling equity stake in the Chinese developer.

CDL said that under the structure of the joint venture, Sincere Property Holdings Ltd (a company controlled by Sincere Property Group’s founder) and CDL jointly control the JV in terms of its material decisions, while the existing team set up by SPHL exercises direct oversight of day-to-day operations and worksite matters.

Second, CDL found fault with the suggestion that Sincere’s corporate governance structure and approval procedures had undergone major changes due to CDL’s investment.

CDL noted that Sincere Property Group has its own eight-member board represented by all three shareholders — CDL (four directors), SPHL (two) and Greenland Holdings Group (two) — thus precluding majority control of board decisions by CDL.

CDL acknowledged that there had been occasions where it could not support Sincere management’s recommendations, such as when they contravened CDL’s corporate governance as a listed company or the recommended use of funds was not in the best interest of all shareholders.

After announcing in mid-February that his company had acquired a majority stake in a Shenzhen tech park from Sincere, CDL chairman Kwek Leng Beng had stressed that his company’s commitment to its joint venture partner was not boundless.

“Our focus is to improve liquidity while limiting any additional financial exposure by CDL to the investment in Sincere Property,” Kwek said in a statement to the Singapore exchange.

Marriage Gone Sour

Sincere’s Wednesday statement came after the Chongqing-based developer missed a deadline to repay the principal on a bond that matured earlier this week, according to investors cited by the Straits Times.

CDL has maintained that Sincere’s liquidity issue was inherent even before CDL’s April 2020 acquisition of a 51 percent stake in the developer for RMB 4.39 billion ($621 million).

On 26 February, CDL announced that a S$1.78 billion ($1.32 billion) write-down on the investment in Sincere had “distorted” the company’s 2020 results. CDL reported a full-year net loss of S$1.92 billion, calling it the worst performance in company history.

The write-down was revealed less than a week after CDL had signed on for its effective 55 percent stake in Shenzhen Tusincere Technology Park Development in a bid to shore up the liquidity of the joint venture with Sincere.

The Sincere investment had triggered the shock resignation of Kwek Leng Peck as non-executive, non-independent director last October after over 30 years in the role. Kwek, the cousin of CDL executive chairman Kwek Leng Beng and the uncle of CDL group CEO Sherman Kwek, was followed out the door in short order by two independent non-executive directors, Koh Thiam Hock and Tan Yee Peng.

All three board members cited CDL’s Sincere investment as a reason for their departure.