Singapore Property Dynasty Faces Climb After China Debacle

(Bloomberg) -- For Singapore’s richest property family, the turnaround of City Developments Ltd. is just beginning.

A bungled Chinese investment has saddled the property developer with a $1.3 billion writedown, raising questions about the extent of the damage and the fallout for top executives who supported the deal.

CDL, which is majority-owned by the billionaire Kwek dynasty, is seeking to draw a line under an episode that has rattled the family business. It has pledged to limit further damage from cash-strapped Chongqing Sincere Yuanchuang Industrial Co., which is now facing a bankruptcy claim, saying on Thursday that it has ring-fenced its current financial exposure.

“This episode has served to be a wake-up call for CDL,” said Justin Tang, the head of Asian research at United First Partners in Singapore. “The current management may not be quick to acknowledge their mistakes but then they quickly react to stop the bleeding.”

The scandal-hit investment has cast a shadow over the business and even sparked a family rift. Several board members including a cousin to the family patriarch and company chairman, Kwek Leng Beng, resigned in disagreement over the deal. And CDL’s scion Sherman Kwek came under intense pressure to salvage the investment that he promoted and which contributed to the first annual loss since the early 1970s.

Shares of CDL gained 2.2% as of 2:14 p.m. in Singapore. The company’s stock has fallen more than 12% this year, trailing rivals CapitaLand Ltd. and UOL Group Ltd.

Now, investors’ attention is on the turnaround plan. CDL may raise funds from U.K. investments, review potential divestment and recovery of its hospitality portfolio as well as tap Singapore’s booming residential market as it seeks to move on from the scandal, according to analysts.

A representative for CDL declined to comment.

Asset Sales

A listing of a real estate investment trust with commercial assets in the U.K., which include the London building housing HSBC Holdings Plc, may help CDL unlock capital which can be redeployed for other attractive opportunities, said Vijay Natarajan, an analyst at RHB Research Institute. A strategic review of its wholly owned hotel arm, Millennium & Copthorne Hotels, may also lead to divestments as the pandemic batters the tourism and hospitality sectors.

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

And as countries including Singapore ramp up vaccination and look to open up, CDL can lean on its hospitality assets in the U.K., Maldives, Germany and Italy. CDL’s hotels “will be positioned to benefit from the trend” with the U.S. and Europe also seeing travel picking up, said Rachel Tan, an analyst at DBS Group Research.

Then there’s the booming residential market it can capitalize on. Singapore’s home prices and sales have remained strong over the past year, driven by the ultra-rich and buyers looking to upgrade from public to private units. CDL launched the Irwell Hill Residences in April, where more than 50% of units were snapped over the opening weekend, and is slated to unveil another private housing project in the second half of next year.

Chairman Kwek has been trying to put the China debacle behind him for months, saying in February when announcing CDL’s record annual loss that he wanted to “forget about all these old subjects.”

“I want to go to the next chapter to grow the company,” he said at the time. “I don’t want to keep talking about Sincere.”

Even as it seeks to move beyond the failed China investment, CDL’s subsequent steps will be tightly watched.

“Going forward, the market will obviously put it under closer scrutiny and CDL must regain its trust,” Tang said.

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