CDL Acquires Majority Stake in Shenzhen Tech Park to Prop Up Sincere JV

Singapore-listed City Developments Ltd on Monday said it had agreed to acquire an effective 55 percent stake in a Shenzhen technology park in a bid to shore up the liquidity of CDL’s joint venture with Chinese developer Sincere Property Group.

Under the terms of the deal, CDL has acquired a combined 84.6 percent interest from three separate shareholders — Sincere itself and two entities controlled by mainland insurer Ping An — in a holding firm, Shenzhen Tusincere Technology Park Development, for RMB 850 million ($131.5 million).

The holding firm in turn controls a 65 percent interest in Shenzhen Tusincere Technology Park, with a local state-owned enterprise owning the remaining 35 percent of the project, which has been independently valued at RMB 8.8 billion.

CDL will assume existing shareholders’ loans proportionately. Sincere will continue to own the remaining 15.4 percent of the holding firm.

Deleveraging Sincere

The asset acquisition will reduce the level of debt relative to equity of Sincere, which has faced liquidity issues since the onset of the COVID-19 pandemic and tighter rules imposed by China on borrowing by property developers, according to CDL.

“In executing this asset acquisition the CDL working group is accelerating efforts to implement the restructuring of Sincere Property,” said CDL executive chairman Kwek Leng Beng. “Our focus is to improve liquidity while limiting any additional financial exposure by CDL to the investment in Sincere Property.”

CDL’s total investment in Sincere remains at S$1.8 billion ($1.36 billion), as announced in October 2020. CDL has provided no further liquidity support or corporate guarantees to Sincere since that time, the company clarified.

In a filing last week with the Singapore Exchange, CDL reported that a Chinese credit rating firm had downgraded five separate issues of Sincere bonds maturing in 2021, as well as the issuer rating of Sincere, from AA to AA-.

The outstanding principal of the five corporate bonds amounts to over RMB 3 billion. CDL pointed out that Sincere is merely a joint venture of the group and that CDL is not committed to the obligations of the bonds, which predate CDL’s involvement with its mainland partner.

Work in Progress

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 self-held office block with GFA of 162,144 square metres.

The 192,739 square metre site is comprised of 70 percent office space and 10 percent retail, with another 20 percent set for apartment use.

The technology park is being developed in four phases, with phase one already completed. Phases two and three remain under construction, and are expected to be completed in April next year. Phase four, the self-held office block, has yet to begin construction.

As of 31 December 2020, pre-sold space in the first three phases stood at 224,933 square metres, with total sales proceeds (including pre-sales) amounting to RMB 7.2 billion.

Damage Control

CDL in January issued a fresh warning that it was likely to report a loss stemming from the firm’s contentious investment in Sincere.

The group cited “ongoing unprecedented challenges” in China’s real estate market and said it expected to make provisions for a material impairment loss on its 51 percent interest in the Chongqing-based developer.

Last November, CDL announced the appointment of Deloitte & Touche Financial Advisory Services to assist in reviewing the Sincere investment. Upon completing the review, Deloitte said the mid-sized builder possessed good assets from which CDL could extract further value.

Even so, CDL said it would weigh Deloitte’s findings and those of auditor KPMG before finalising its own assessment of the fair value of the Sincere assets by the end of 2020, but the process of finalising the audit of Sincere and that the amount of the impairment remained undetermined.

The review of the Sincere investment followed the shock resignation of Kwek Leng Peck as non-executive, non-independent director in 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.