City Developments Limited (CDL) has, on Sept 10, announced that it was divesting its interest in Chongqing Sincere Yuanchuang Industry Co (Sincere) for a total consideration of US$1 ($1.34).
The sale and purchase agreement was signed by Sonic Investment, a wholly-owned subsidiary of CDL, HCP Chongqing Property Development (HCP Cayman) and Sure Spread Limited.
Under the terms of the agreement, CDL, via Sonic, will sell its 63.75% equity interest in HCP Cayman for a consideration of US$1 to Sure Spread.
HCP Cayman holds an 80.01% equity interest in Sincere, which translates into an effective stake of 51% CDL holds in Sincere.
Sure Spread is an unrelated third party proposed by Beijing Changyuan Industrial Investment Management Partnership.
According to CDL, the consideration for the sale shares took into account Sincere’s current liquidity issues and potential bankruptcy reorganisation.
See: City Developments reiterates ring-fencing of exposure to Sincere amidst bankruptcy proceedings and Chongqing Sincere Yuanchuang Industrial Co may undergo a court-led restructuring
The group, for the FY2020 ended Dec 31, announced that it had taken an impairment of $806 million on its cost of investment in HCP Cayman of $882 million.
See also: CDL records $1.78 bil impairment on Sincere Property Group; declares $1.92 bil loss for FY20 and Analysts remain positive on CDL despite impairments on Sincere
CDL’s cost of investment in HCP Cayman has been reduced to zero after taking into account its share of loss of $76 million.
In conjunction with the divestment of Sincere’s shares by CDL, the group’s subsidiary, Suzhou Global City Genway Properties (Suzhou Global City) entered into an agreement with Sincere.
Under the agreement, Suzhou Global City will facilitate the transfer of an interest of 15.4% in shares of Shenzhen Tusincere Technology Park Development from Sincere. This is to partially repay a loan owed by Sincere to Suzhou Global City.
Shenzhen Tusincere is the holding company which holds a 65% stake in Shenzhen Longgang Tusincere Tech Park (Shenzhen Tech Park). The remaining 35% is held by Shenzhen Longgang District state-owned enterprise.
CDL, on Feb 22, said that it had acquired an 84.6% stake in Shenzhen Tusincere, which is now its wholly-owned subsidiary.
Via Shenzhen Tusincere, CDL holds a 65% effective stake in Shenzhen Tech Park.
Following the completion of the transfer, CDL’s financial exposure to Sincere will be reduced from $117 million as at June 30, by the fair value of the transfer.
According to a statement by CDL, the group “will continue to assess the recoverability of the remaining balance of its financial exposure to Sincere”.
The move also allows CDL to exit its investment in Sincere and “avoid being engaged in a possibly long drawn bankruptcy reorganisation of Sincere”.
All of CDL’s nominee directors and officers will resign from Sincere and its related companies.
The loan repayment agreement by Suzhou Global City enables CDL to have direct operational control over the project management of Shenzhen Tech Park.
“The group will continue to protect its rights as a creditor in relation to the repayment of the remaining outstanding loans which had been extended to Sincere (including all amounts that remain outstanding under the relevant loan),” it says in its Sept 10 statement.
The divestment and agreement are not expected to have a material impact on CDL’s earnings per share (EPS) or net tangible asset (NTA) per share for the financial year ending Dec 31.
Shares in CDL closed 6 cents higher or 0.91% up at $6.67 on Sept 10.
See also: CDL's China deal is a cautionary tale and Lack of reaction from CDL's price implies Sincere's bond default is factored in
Photo: Samuel Isaac Chua/The Edge Singapore
