CDL: Sincere Property 'misrepresented' circumstances of investment, relationship

CITY Developments Limited (CDL) on Thursday said that Sincere Property Group has "misrepresented" the circumstances of CDL's investment in the mainland Chinese developer as well as the relationship between the two parties, following claims by Sincere Property that CDL held up key decisions since taking control of the company.

CDL said in a statement on Thursday night: "We are deeply concerned that Sincere Property has issued the statement which contained incorrect information about CDL, in a way which could mislead readers to believe CDL should take primary responsibility for the current situation of Sincere Property."

It also noted that the Chinese property group had issued the statement without consulting CDL.

"The group takes a serious view of the recent statements by Sincere Property," said CDL. It added that it will "strenuously defend" itself against the "major inaccuracies" highlighted and will continue to adhere to "high standards of disclosure" even as it continues to engage Sincere Property, taking all necessary steps, including legal action.

On Wednesday, Sincere Property posted a statement in Chinese on its website, claiming that its corporate governance structure and approval processes have undergone major changes since CDL took control of the company, with key matters now requiring the approval of CDL's management in Singapore.

As a result, decisions have been delayed, severely affecting its ability to use financing and asset disposals to improve operations and cash flow, said Sincere Property.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

That statement came after Sincere missed a deadline to repay the principal on a bond that matured earlier this week, Bloomberg reported, citing investors.

CDL refuted these claims on Thursday, saying instead that, on the occasions it could not support Sincere Property management's recommendations, it was because they "contravened CDL's corporate governance as a listed company and the recommended use of funds were not in the best interest of all shareholders".

CDL also pointed out what it described as two material inaccuracies.

First, it noted that it holds joint controlling equity stake in Sincere Property Group, and therefore will "jointly control material decisions" with it, while the existing operation team set up by Sincere Property previously continues to exercise "direct oversight" of its day-to-day operations and work site matters.

Next, CDL noted that Sincere Property's eight-member board of directors is represented by all three shareholders - CDL has four seats; Sincere Property Holdings Limited, a company controlled by Sincere Property's founder, has two, and Greenland Holdings Group, the remaining two.

However, "even with four board seats, the legal structure of the joint venture (with Sincere Property) does not accord CDL majority control of board decisions," the group said.

In addition, Sincere Property has over 2,000 employees versus the fewer than eight employees seconded by CDL to Sincere Property's headquarters in Shanghai.

"(They) were sent there after the joint venture was concluded to co-share knowledge and best practices, and to work as subordinates to Sincere Property's senior management," CDL said.

In its conclusion, CDL noted that the liquidity issue Sincere Property faces was "inherent" even before its investment, with Sincere Property's "growth-focused approach" leading to high gearing that left it vulnerable in the face of the Covid-19 crisis and structural policy shifts related to China's property sector.

"As a shareholder, CDL's intention has always been to support Sincere Property in restructuring its debt and improving its capital position," CDL said.

However, due to the complexities of the debt structure and cross-collaterals of Sincere Property's assets, the restructuring process has "remained difficult and long-drawn amid an already challenging operating environment," it added.