City Developments—controlled by billionaire Kwek Leng Beng and his family—has decided to divest its equity stake in Sincere Property Group, avoiding what could be a “long drawn bankruptcy reorganization” for the cash-strapped Chinese subsidiary.
In an exchange filing late Friday, the Singapore-based property developer said it has agreed to sell the group’s 63.8% stake in HCP Chongqing Property Development, which holds 80% of Sincere, for $1.
“The consideration for the sale shares was agreed upon, taking into account the value of the sales shares, the current liquidity issues and potential bankruptcy reorganization of Sincere,” City Developments said in a statement.
Concurrent with the divestment of its equity stake in Sincere, the company said it increased its effective stake in Shenzhen Tech Park to 65% by taking over Sincere’s interest in the industrial park. The consideration for the additional stake will be offset against City Developments’ remaining S$117 million debt exposure to Sincere.
“The board is of the view that the Sincere divestment and the Shenzhen agreement are in the best interest of the group as these allow the group to exit its investment in Sincere, and avoid being engaged in a possibly long drawn bankruptcy reorganization of Sincere,” City Developments said.
Sincere’s financial troubles has been a drag for City Developments. The company wrote off S$1.78 billion ($1.3 billion) from its equity investment in Sincere last year, driving the group to report a net loss of S$1.9 billion for 2020, its worst-ever financial performance. In July, a creditor filed a bankruptcy claim against the Shanghai-based real estate developer at Chongqing No. 5 Intermediate People’s Court in China.
“We’re coming to the tail end of this negative news flow from Sincere,” said Vijay Natarajan, an analyst at RHB Singapore. “Bankruptcy can be quite a long drawn process in China and it’s going to draw away management’s time and focus. They realized that this battle is not worth fighting for.”
Upon completion of the divestment, City Developments said all its nominee directors and officers will resign from Sincere. “Notwithstanding the group’s divestment of Sincere, the group will continue protect its rights as a creditor in relation to the repayment of the remaining outstanding loans which had been extended to Sincere,” it said.
City Developments took a controlling interest in Sincere Property in April 2020 as the Covid-19 pandemic started to wreak havoc on the global economy. The investment had sparked a disagreement between company chairman Kwek Leng Beng and his cousin, Kwek Leng Peck, who stepped down from the company’s board in October. In December, two independent directors—who also disagreed with the investment decision—resigned.
Kwek, 80, is also the chairman of Singapore’s Hong Leong Group, which was founded by his father in 1941. His cousin Quek Leng Chan, who is also a billionaire, runs a separate group in Malaysia, which also called Hong Leong. With a net worth of $8.5 billion, the Kweks were ranked No. 8 on the list of Singapore’s 50 richest that was published last month. His eldest son Sherman has been group CEO of City Developments since 2018.