City Development Limited (CDL) hit with a $1.3b loss from a China investment

Irwell Hill Residences

 

City Developments Limited (CDL) has been hit with a US$1.3 billion writedown due to a botched Chinese investment, raising concerns about the magnitude of the damage and the consequences for senior executives who backed the transaction.

CDL, which is majority-owned by the Kwek dynasty, is attempting to put an end to an incident that has shaken the family company.

It said on Thursday that it had ring-fenced its existing financial risk to prevent future harm from cash-strapped Chongqing Sincere Yuanchuang Industrial, which is now facing a bankruptcy claim.

The tainted investment has thrown a pall over the company and even caused a family feud. “This incident has acted as a wake-up call for CDL,” said Justin Tang, United First Partners’ director of Asian research in Singapore. “The present management may not be quick to admit their errors, but they respond swiftly to stem the bleeding.”

Several board members, including Kwek Leng Beng, a cousin of the family patriarch and business chairman, resigned in protest over the transaction. And CDL’s scion Sherman Kwek was put under a lot of pressure to save the investment he agreed, which resulted in the company’s first annual loss since the early 1970s.

The stock has dropped more than 12% this year, lagging behind competitors CapitaLand and UOL Group.

Investors are now focused on the turnaround strategy. As it tries to recover from the scandal, CDL may obtain money from UK investments, examine possible sale and recovery of its hotel business, and access Singapore’s growing residential market, according to experts.

CDL’s spokesperson refused to comment.

According to Vijay Natarajan, an analyst at RHB Research Institute, a listing of a real estate investment trust with commercial assets in the United Kingdom, which includes the London building housing HSBC Holdings, may help CDL unlock capital that can be redeployed for other attractive opportunities.

As the pandemic hits the tourist and hospitality industries, a strategic assessment of its fully owned hotel business, Millennium & Copthorne Hotels, may lead to divestments.

“There is recent evidence that prime hospitality assets are still selectively desired by long-term core investors in key gateway markets,” said Priyaranjan Kumar, managing director of Alvarium Investments. “A selective sale and leaseback is a distinctively attractive route for most hotel owners globally.”

CDL can rely on its hospitality assets in the UK, Maldives, Germany, and Italy while nations like Singapore ramp up immunization and open up.

According to Rachel Tan, an analyst at DBS Group Research, CDL’s hotels “will be positioned to profit from the trend,” with tourism increasing up in the United States and Europe as well.

Then there’s the burgeoning residential market on which it can cash in. The ultra-rich and purchasers seeking to upgrade from public to private apartments have kept Singapore’s house prices and sales high over the last year.

CDL debuted the Irwell Hill Residences in April, selling out more than half of the apartments in the first weekend, and plans to launch another private housing project in the second half of next year.

Chairman Kwek has been attempting to put the China disaster behind him for months, stating in February that he wished to “forget about all these old issues” while reporting CDL’s record annual loss.

“I want to take the business to the next level,” he stated at the time. “I don’t want to speak about Sincere any longer.”

CDL’s next moves will be closely scrutinized as it attempts to move beyond the failed China venture.

“The market will definitely scrutinize it further in the future, and CDL must recover its confidence,” Mr Tang added. BLOOMBERG