CDL to scoop up controlling stake in China's Sincere Property Group

CITY Developments Limited (CDL) is acquiring a 51.01 per cent stake in Chinese real estate developer Sincere Property Group for RMB4.39 billion (about S$0.88 billion), which will enable it to expand its footprint in China.

As part of the transaction, a call option will also be granted to CDL, which it can exercise to purchase an additional 9 per cent interest in Sincere Property for RMB0.77 billion at the same entry valuation. If exercised, it will allow CDL to acquire a 60.01 per cent stake in Sincere for a total of RMB5.16 billion.

"Given the adverse impact of the Covid-19 crisis and the global uncertainty, CDL has taken the opportunity to negotiate new terms for its investment into Sincere Property, which are significantly improved over the original investment terms announced last year," said CDL in a statement to the Singapore Exchange after the market closed on Wednesday.

CDL had announced in May last year that it would acquire a 24-per-cent stake in Sincere by investing RMB5.5 billion, which would comprise an equity investment and extending interest-bearing loans. The investment was to be split equally into two tranches, the first being a four-year interest-bearing loan of RMB2.75 billion, part of which would be converted into equity. The second tranche of RMB2.75 billion was to have been invested once certain conditions were fulfilled. The deal was not completed by Q4 2019 as expected "due to a variety of factors", said CDL, adding that it did not acquire a stake in Sincere, but had extended an interest-bearing loan of RMB2.75 billion last year.

Sincere will use part of the RMB 4.39 billion to repay a loan previously extended to it by CDL. Once the deal is completed, CDL will hold a joint controlling interest in Sincere through an offshore investment vehicle. Sincere chairman Wu Xu's stake in Sincere will fall from 60 per cent to 29 per cent; Chinese developer Greenland Holdings Group Co will see its shareholding in Sincere about halve from 40 per cent to 19.99 per cent.

The new transaction values Sincere at RMB8.60 billion, almost 50 per cent below its net asset value (NAV) of RMB16.48 billion as at its unaudited consolidated financial statements for the year ended Dec 31, 2019.

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With this deal, CDL's portfolio allocation in China will go up from 13 per cent to 17 per cent as its presence in China goes from three cities to 18. It will also broaden its capabilities across property segments to include new asset classes such as business parks. The deal also gives CDL access to Sincere's development land bank of 9.2 million sq m, with 64 development projects across mostly Tier 1 and 2 cities in China. In addition, Sincere has a portfolio of 27 investment properties in the retail, office and hospitality segments. 

Shares in CDL closed 44 cents lower on Wednesday at S$7.48.