After investing $1.4 billion in Sincere Property Group (协信远创) over the past 17 months, City Developments Ltd has agreed to sell its majority stake in the Chongqing-based developer for $1.00 as it writes off the mainland joint venture.
“The consideration for the Sale Shares was agreed upon, taking into account the value of the Sale Shares, the current liquidity issues and potential bankruptcy reorganisation of Sincere,” CDL said in a statement to the Singapore stock exchange late on Friday.
At the same time that it parts with its equity stake in Sincere, Singapore’s largest non-government-backed developer has arranged to trade loans extended to its mainland joint venture last year for a stake in a Shenzhen tech park, which will end Sincere’s participation in that 575,000 square metre (6.2 million square foot) project.
The pair of moves are the latest in a series of efforts by CDL to extricate itself from the Sincere quagmire after the cash hemorrhaging from the business park developer helped drag the Singaporean firm to a S$1.9 billion ($1.4 billion) loss last year and led to the departure of four directors from CDL’s board.
“The Board is of the view that the Sincere Divestment and the Shenzhen Tusincere Agreement are in the best interests of the Group as these allow the Group to exit its investment in Sincere, and avoid being engaged in a possibly long drawn bankruptcy reorganisation of Sincere,” CDL said in the statement.
Under the terms of a sale and purchase agreement described in Friday’s announcement, CDL is selling its 63.75 percent interest in an entity called HCP Cayman in return for the $1.00 cash consideration. HCP holds 80 percent of Sincere, making the equity sale equal to a 51 percent stake in the Chongqing developer.
The buyer of the $1.00 stake is a Seychelles-incorporated entity proposed by Beijing Changyuan Industrial Investment Management Partnership (北京长圆产业投资基金管理合伙企业), CDL said.
In July, Sincere was sued for bankruptcy in a Chongqing court after failing to repay the RMB 444.5 million in principal on a bond that matured on 11 March. CDL said at the time, “The Group will closely monitor the situation and embark on the appropriate corporate and legal action as an investor and creditor of Sincere Property.”
Following completion of the divestment, all CDL representatives will resign from Sincere and its board.
Defaults and Impairments
City Developments had acquired that 51 percent holding in Sincere during April last year for an initial investment of RMB 4.39 billion ($621 million) after renegotiating an earlier loan to the troubled developer. Just one month before that investment, Sincere had seen four of its domestic bonds suspended after the company had defaulted on RMB 2.6 billion in payments on the instruments.
With Sincere having suffered a string of defaults since that time, CDL had announced with the release of its 2020 financial results that it had registered a $601 million impairment on its $657 investment in the China joint venture’s equity to date. In total, CDL registered an impairment of $1.33 billion on its 2020 books to account for its investment in Sincere.
The company made clear at the end of 2020 that it would make no further investments in Sincere and would extend no additional credit to its insolvent joint venture.
In an attempt to claw back some of the cash loaned to Sincere last year, CDL has agreed to take over its partner’s remaining 15.4 percent stake in a holding company that owns a stake in Shenzhen Tusincere Technology Park, a partially completed mixed-use project in Shenzhen’s Longgang district. That holding in the tech park project had been pledged by Sincere as security against an earlier loan by CDL.
Located in the Universiade New Town area near the Shenzhen Universiade Sports Centre, Shenzhen Tusincere Technology Park has a total saleable gross floor area of 413,634 square metres (4,452,319 square feet), plus a 162,144 square metre self-held office block.
The 192,739 square metre site consists of 70 percent office space and 10 percent retail, with another 20 percent set for apartment use.
Following completion of the tech park transaction, CDL will hold an effective 65 percent stake in Shenzhen Longgang Tusincere Tech Park after taking over a majority stake in the private portion of the joint venture with a local government entity from Sincere and a pair of entities controlled by Ping An Insurance in February. After the deal is completed, an entity controlled by the Longgang district government will be CDL’s sole partner in the project with a 35 percent stake.
Having used the tech park deal to enhance the ledger on its Sincere investment, CDL said: “The Group will continue to assess the recoverability of the remaining balance of its financial exposure to Sincere.”