Kwek family feud sours CDL’s prospects, but can catalyse value unlocking

INVESTORS buy into listed groups where families hold major stakes and are active in management, partly because they see families with skin in the game taking the long-term view in growing the business.

However, families are prone to conflict – and discord within billionaire business families makes for especially good drama but can hugely damage a company’s business prospects.

In 2020, non-executive director Kwek Leng Peck left City Developments Ltd (CDL), which is a member of the benchmark Straits Times Index, after more than three decades in the role, citing disagreement with the board and management on the group’s investment in Chinese firm Sincere Property Group, and reservations over the management of the UK-based hotel arm.

He is the cousin of CDL’s executive chairman Kwek Leng Beng, who also heads Hong Leong Investment Holdings (HLIH) and is ranked among Singapore’s richest by Forbes. HLIH holds a direct and deemed interest of more than 49 per cent in CDL. 

On Feb 26, bombshell news emerged that Kwek Leng Beng had filed court papers to deal with the “attempted coup” by Sherman Kwek, Philip Lee Jee Cheng, Wong Ai Ai and directors acting with them to allegedly consolidate control of the board and the group.

Kwek Leng Beng wants to remove his son Sherman as CDL’s group chief executive officer, citing the latter’s circumventing of corporate governance laws.

He also said that since Sherman Kwek became CEO in 2018, there have been serious missteps, including the Sincere Property debacle that led to a S$1.9 billion loss for CDL in 2020, and poor investment decisions in the UK property market.

Kwek Leng Beng wants his nephew – CDL’s chief operating officer Kwek Eik Sheng – to be interim CEO and a professional CEO to be appointed. 

Late on Feb 26, Kwek Leng Beng said CDL’s new independent directors Jennifer Duong Young and Wong Su Yen, who were “irregularly and hastily appointed” on Feb 7, have undertaken not to exercise any powers as directors until further notice of the court.

Sherman issued a statement late on Feb 27 on behalf of the majority of CDL’s board stating that the primary reason for the dispute with the chairman relates to “a very serious issue of corporate governance” within the CDL group arising from the conduct of Dr Catherine Wu, who has a “long relationship with the chairman”.

Adverse impact

How CDL’s board may change going forward could depend to a large extent on how HLIH and entities linked to it vote on board appointments.

What is doubtless is that the family feud hurts CDL’s reputation and business prospects. Decision-making could slow down, thereby affecting ongoing operations, as well as investments, divestments and asset rejuvenations.

Staff morale may be strained and, worse, staff might be caught in the cross hairs of the father-son fight. Will top talent want to join CDL while there is much uncertainty at the highest echelon? Uncertainty can also affect staff retention.

Sure, CDL owns high-quality assets. However, the group cannot afford major distractions.

Competition for choice sites in Singapore is fierce, margins on housing developments here are generally thin, overseas forays need to be carefully judged, and capital must be assiduously managed given global economic uncertainties, and how interest rates may not fall much further. Also, innovation and attention to detail are needed to drive outperformance from investment properties and property development projects.

In short, top management has to focus laser-like on the business, and be at the top of its game for CDL to fight the competition.

CDL’s share price is poor. As at Feb 25, the counter traded at S$5.12 or a discount of 50 per cent to end-2024 net asset value (NAV) of S$10.17, and 74 per cent to restated NAV of S$19.86 if fair value gains on investment properties and hotels were included.

Damagingly, the board tussle might undermine CDL’s investor relations efforts, and hold back the board from urgently coming up with concrete plans to optimise shareholder value.

Catalyst

Nonetheless, might the father-son feud actually help catalyse value-unlocking moves at CDL?

Resolving the Leng Beng-Sherman tussle could be a precursor to the prevailing party acting quickly with the support of the board and management to wow the stock market with bold value-unlocking moves.

For example, CDL can restructure by splitting the property development business from the investment property and hotel businesses. Also, the group can aggressively inject assets into listed and unlisted funds, and significantly scale up in fund management.

If 84-year-old Kwek Leng Beng is firmly in the driver’s seat, he can try cementing his long legacy at CDL with a bold restructuring that makes the group a stock-market darling.

Alternatively, the father-son feud may cause unease among other Kwek family members, and potentially lead some of them to seek an exit for their interest in CDL. Could Kwek Leng Beng, possibly working alongside financial partners, offer to privatise CDL at a juicy premium to its trading price?

Maybe shareholding control of CDL will be up for grabs, in which case shareholders including the Kweks might see a third party paying around restated NAV for the group.

Intriguingly, a family solution could come from Kwek Leng Beng’s cousin, Malaysian tycoon Quek Leng Chan. A friendly merger with GuocoLand , where Quek is chairman and a major shareholder, will create a potent force in the Singapore property scene.   

CDL has come far since its founding in 1963 when the group began in a small, rented office in Amber Mansions with eight employees. Its success can be attributed largely to the Kwek family’s leadership. In 1972, the Hong Leong Group, then helmed by Kwek Leng Beng’s father Hong Png, acquired a controlling stake in CDL.

Family woes now cast an ugly shadow over CDL, which through the years has built a strong reputation with many homebuyers here and counterparties.

Ultimately, the business today has a strong platform. Shareholders may need to hold their nerve and hope business performance does not take a huge hit from the family feud. In fact, there is a silver lining if the feud catalyses bold value-unlocking moves that boost CDL’s deeply undervalued stock price.

The writer holds shares in CDL