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Thursday, October 22, 2020 – 5:50 am
Singapore
IN one of City Developments’ most impressive corporate developments in its more than 50-year history, its non-executive, non-independent director, Kwek Leng Peck, left the real estate giant on Monday, citing his disagreements with the board and management over the group. investment in a Chinese real estate group and its management of its British hotel arm.
The 64-year-old resigned after more than three decades in office.
He stated in his resignation letter that he disagreed with the board and management regarding the group’s investment in Sincere Property Group in China, as well as its continued provision of financial support to Sincere.
He also had reservations with the group’s focus on managing the London-based wholly-owned Millennium & Copthorne Hotels (M&C) unit.
Mr. Kwek also resigned as a director of M&C, coinciding with his resignation from the parent company.
He is the cousin of CDL CEO Kwek Leng Beng and the uncle of CDL Group CEO and CEO Sherman Kwek, who is the son of Leng Beng.
Mr. Kwek Leng Peck is also a director of the substantial shareholders of CDL Hong Realty (Private) Limited, Hong Leong Holdings Limited and Hong Leong Investment Holdings Pte Ltd. Including these three companies, he held management positions in about 80 entities as of Monday.
In a stock exchange presentation on Wednesday, CDL noted that its investments in Sincere totaled about S $ 1.9 billion.
These include a 51 percent joint venture equity investment in the latter in the amount of 4.4 billion yuan (S $ 896.8 million). It had also subscribed to bonds issued by Sincere worth $ 230 million and granted a working capital loan of 650 million yuan.
Investments also include a 1.5 billion yuan liquidity support commitment provided by CDL for Sincere’s bonds due October 26, 2020, as well as a 1.5 billion yuan corporate guarantee in connection with an external bank loan. Obtained by Sincere.
“Sincere’s liquidity position is challenging, as it was severely affected by the Covid-19 pandemic and property cooling measures that caused further liquidity adjustment for real estate companies in China,” CDL said.
As a result, the asset divestment plan for some of Sincere’s retail, hotel, office and business park assets is now expected to run for a longer period, he added.
The plan is intended to ease Sincere’s debt burden on investment property exposure and underpin its residential development plans to transform its platform.
CDL also said it is in the process of identifying and appointing an outside financial adviser to assist with further evaluation and review of the group’s investment in Sincere. “The impact on the group or its financial reports will be prepared and calibrated together with the external financial advisor,” said CDL.
The most recent tightening of the liquidity of real estate companies in China is what has been called “Three Red Lines”; These refer to metrics regarding debt that developers will have to meet if they want to borrow more, as Bloomberg reported earlier this month.
Developers who wish to refinance will be evaluated based on these thresholds. First, there will be a 70 percent cap on liabilities versus assets, excluding anticipated revenue from projects sold by contract. Second, there is a 100% cap on net debt to equity; and third, they must have cash on hand that is at least equal to or greater than short-term loans.
Developers will be ranked based on the number of limits they exceed and their debt growth will be limited accordingly. “If all three are defaulted, the company will not be able to increase its debt the following year,” Bloomberg reported, citing a report from the 21st Century Business Herald. If you pass all three, you can increase your debt a maximum of 15 percent in the next year.
A real estate analyst at a Singapore brokerage firm said: “From the beginning, Sincere Group was not in a comfortable situation; it was very oriented. The Chinese government has been adjusting developer debt and I think the ‘Three Red Lines ‘may be the last try.
“There are two ways to cure Sincere’s high debt. One is to divest their assets, which is difficult at the moment because they may not get the value they want. The other is for Sincere to get a cash injection to stay afloat. that the deals are online. For this, he will probably turn to his shareholders, including CDL. Perhaps Leng Peck feels that this would be throwing good money after bad. “
Regarding M&C, CDL noted that 2020 has been a difficult year for the hospitality and tourism sector.
In the first half of this year, the group’s hotel operations segment posted a substantial pre-tax loss of S $ 208.2 million, which included S $ 33.9 million of impairment losses in light of the coronavirus pandemic.
M&C, which owns, manages and operates more than 145 hotels around the world, was delisted from the London Stock Exchange in October 2019 after the CDL completed its privatization exercise.
Market watchers note that Kwek Leng Beng is not ashamed of being seen with a revolving door policy or high turnover of CEOs at M&C.
“My feeling is that there may be some disagreement about the appointment and the frequent CEO change at M&C, in the way things are being run. My suspicion is that maybe Leng Peck wants someone to have a lead over a period of time, what Beng may not want, “said the brokerage analyst.
Mr. Kwek Leng Peck owns 43,758 common shares of CDL.
CDL lifted its trading stop at 1.30pm on Wednesday. The stock fell 7.2% or S $ 0.55 to end the day at S $ 7.08.
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