CDL shares tumble after third director quits over Sincere investment

Leadership changes in relation to City Developments Limited’s investment in Sincere Property Group has rocked the Singapore property behemoth’s share performance.

  • City Developments Limited (SGX: C09) share price drops to S$7.86 a share, down 1.3%
  • Its internal issues deepened after a third board member resigned in three months
  • The directors cited differences in opinion regarding an investment in China
  • Analysts are still largely bullish on CDL’s stock in the year ahead
  • Keen to trade CDL? Open an IG account today.

CDL stock kickstarts 2021 on lower ground

Shares of City Developments Limited (CDL) sank on Monday (04 January 2021), following yet another board resignation over its investment in China-based Sincere Property Group.

The counter slid as much as 1.3% to S$7.86 within the first hour of trading. It was down 1.1% to S$7.88 by the midday break.

Tan Yee Peng quit as an independent non-executive director on 30 December 2020 after more than six years in the role. Two days prior, Koh Thiam Hock stepped down as independent non-executive director. Koh, appointed in 2016, had ‘shared his observations, concerns and suggestions’ on the Sincere investment.

And in October 2020, Kwek Leng Peck exited CDL abruptly, after more than three decades as non-executive non-independent director.

Kwek disagreed with the board and management on the Sincere investment and the group’s continuing provision of financial support to the Chinese property firm, among other things.

He is a second-generation scion of the family that controls CDL, being chairman Kwek Leng Beng’s cousin and CEO Sherman Kwek’s uncle.

What is the Sincere investment about?

In April 2020, seeking to become a major property player in China, CDL bought a 51.01% stake in Sincere for 4.39 billion Chinese yuan.

Including that equity investment, CDL’s investments in the Chinese firm amounted to S$1.9 billion as of 21 October 2020. CDL had also subscribed for US$230 million of Sincere’s bonds and provided a 1.5 billion yuan corporate guarantee for a bank loan.

CDL has said Sincere’s liquidity position was ‘challenging’, given the Covid-19 pandemic’s severe impact and China’s property cooling measures.

In November, Deloitte, appointed by CDL to review the investment, found that ‘there are good assets the group can extract further value’ from.

CDL is planning to divest some of Sincere’s retail, hospitality, office and business park assets to lighten the Chinese company’s debt load and shore up its residential development plans.

What impact could the resignations have?

Back in October, OCBC Investment Research wrote that Kwek’s concerns over Sincere were valid, considering China’s increasing scrutiny on leverage in the real estate sector.

However, the analysts said the situation would likely be ‘manageable’ as China’s recovery from the pandemic remained firm.

OCBC believes there could be further impairments ahead, and Sincere-related developments would dampen investor sentiment in the near term.

Apart from these developments, DBS Group Research on 04 January 2021 wrote that CDL will see ‘strong earnings recovery’.

CGS-CIMB in December said it likes CDL for its attractive valuations and potential for asset enhancement opportunities. The stock is among the brokerage’s preferred picks for the Singapore residential property sector.

Out of 11 analysts, nine have a ‘buy’ or ‘overweight’ call on CDL while two rate it ‘hold’. Their average target price is about S$9.45.

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