On July 8, 2021, City Developments (CDL) announced that a bankruptcy claim was filed by Beijing Yi He Mercury Investment Co., a Sincere Property joint-venture. CDL owns 51% of Sincere Property, in which it had invested $1.9 billion, and impaired $1.78 billion. In its July 8 announcement, 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,” the statement says.
An update by Insights Direct DBS points out that CDL had previously made a commitment to not inject further funds into Sincere until the unit returned to health. “While the verdict now is on the court, we believe there should be no immediate impact on the numbers given City Dev’s impairment on its investment,” the DBS unit says.
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Meanwhile CDL’s share price is below $7. “It is now trading at 0.74 times price to NAV, close to its historical trough since 2013 of 0.7 times. When the news on Sincere was released in Oct 2020, CDL’s ahre price fell to $6.20,” DBS points out. “We believe bad news are priced in at current levels of below $7, which is close to the bottom.”
Among the reasons DBS cites for a re-rating are: i) continued optimism in Singapore residential market; ii) potential asset recycling into the reported potential listing of a new UK REIT; iii) further potential asset divestment as it restructures its hospitality portfolio and iv) recovery of its hospitality portfolio following from the progressive reopening globally.
According to Bloomberg, all the recommendations on CDL in the past three months have been either buy, outperform, overweight or add.
