CDL down as much as 4.2% on Chongqing Sincere's potential restructuring
SHARES of City Developments Limited C09 (CDL) fell as much as 4.2 per cent on Thursday following news of a potential restructuring of Chongqing Sincere Yuanchuang Industrial.
Sincere Property Holdings - which CDL has a 51 per cent stake in - is the second-largest shareholder of Chongqing Sincere. It is preparing to work with stakeholders and creditors on a restructuring, according to a Bloomberg report.
A Beijing-based creditor of Chongqing Sincere had submitted a bankruptcy petition against Chongqing Sincere. If accepted, a formal process would be triggered, leading to either restructuring or liquidation, or a settlement between creditors and the company.
CDL shares dropped to an intraday low of S$6.71, down 4.2 per cent or S$0.30. The last time the counter closed near this level was in November 2020. As at the midday trading break, shares of CDL were trading 1.6 per cent or S$0.11 lower at S$6.90.
The counter ended at S$6.84 on Thursday, lower by 2.43 per cent or S$0.17.
The group said in a bourse filing on Thursday that it was made aware of the bankruptcy claim filed by Beijing Yi He Mercury Investment Co Ltd against Sincere Property, on July 5.
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CDL reiterated that it has ring-fenced its current financial exposure to its investment in Sincere Property and it will not support the continuing financial obligations of Sincere Property.
"Despite the bankruptcy proceedings, the group will continue to strenuously protect its position and limit further exposure," it added.
Citi expects the news surrounding Sincere Property Group to result in a "knee-jerk negative reaction" on CDL, its analyst Brandon Lee said in a research note on Thursday.
However, the Singapore property developer should still see some buying interest among long-term value-oriented investors, given its "significant underperformance" in the year to date and undemanding valuations.
Citi has a target price of S$11.02 for CDL, which is a 25 per cent discount to the research team's projected revalued net asset value (RNAV) of S$14.69, similar to where CDL traded at during the past few global downcycles. RNAV is the most common valuation methodology used for developers listed in Singapore, Citi noted.
In February, CDL booked a substantial impairment loss of S$1.78 billion on its investment in China-based Sincere, which "distorted" the group's half-year and full-year results, it said at the time. The impairment dragged the group into a net loss of S$1.92 billion for the second half of last year, versus a S$202.6 million profit for H2 2019.
In its latest statement on Thursday, CDL said: "Having recognised the substantial impairment in FY2020, the group's remaining exposure amounts to only S$126 million as at Dec 31, 2020."
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