Following the acquisition, Sincere Property’s chairman and founder, Wu Xu, will see his stake reduce from 60% to 29%, while Greenland Holdings Group Co, a prominent developer in China, will see its shareholding decrease from 40% to 19.99%.
As part of the transaction, a call option will also be granted to CDL to purchase an additional 9% effective interest in Sincere Property for RMB0.77 billion at the same entry valuation.
This will be exercisable at CDL’s discretion during a six-month period, which will only commence 18 months after completion of this transaction or 1 July 2022, whichever is later.
Assuming the call option is exercised, the total consideration to acquire a 60.01% effective stake in Sincere Property is RMB 5.16 billion.
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CDL’s group chief executive officer Sherman Kwek describes the move as a “game changing investment” for the group.
“Their high quality and sizeable asset portfolio is a synergistic fit and complements our core businesses of property development, asset management and hospitality,” Kwek says. “Despite our relatively late entry into China’s real estate market only a decade ago, this investment will immediately accelerate CDL’s geographical presence from three to 18 cities in China.”
“CDL’s investment will strengthen and expedite Sincere Property’s growth as we work closely to prioritise our core business segments. We will also continue to seek new opportunities to increase our land bank and pipeline of properties to achieve stronger sales,” says Sincere Property’s Wu.
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CDL first announced its intention to invest RMB5.5 billion in Sincere Property in May 2019. The investment comprised equities and the extension of interest-bearing loans in exchange for a 24% effective stake in Sincere Property.
This was to be settled into two equal tranches. The first tranche included a four-year interest-bearing loan to Sincere Property that amounted to RMB 2.75 billion, part of which would be converted into equity. The remaining tranche of RMB 2.75 billion was to be invested later, upon fulfilling certain conditions.
The transaction, which was originally due to be completed in 4Q19, was not fulfilled, due to a variety of factors. The terms were re-negotiated by CDL in light of the Covid-19 crisis.
The new terms will see part of the investment quantum used to repay the RMB2.75 billion loan.
As at 31 Dec, 2019, CDL’s global asset portfolio amounts to $23.2 billion, of which China accounts for 13%.
Shares in CDL closed 44 cents lower, or down 5.6%, at $7.48.
See also:
- CDL announces transformational China transaction amid 1QFY2019 earnings surge
- Citing disagreements over investment in China, Kwek Leng Peck quits CDL's board
- CDL appoints Deloitte & Touche as external financial advisor to evaluate investment in Sincere Property Group
- Another CDL director resigns in relation to Sincere Property investment
- Third CDL director resigns in relation to Sincere Property investment
- CDL appoints special working group to review and improve liquidity and profitability for Sincere Property Group
- CDL's Sherman Kwek seeks to salvage Sincere Property deal
- CDL says it expects to record 'material impairment loss' on Sincere investment
- CDL records $1.78 bil impairment on Sincere Property Group; declares $1.92 bil loss for FY20
- CDL's Sincere Property RMB Bonds downgraded to AA-
- CDL begins monetisation of Sincere’s assets
- City Developments looks beyond Sincere
- CDL and Sincere: the blame game begins as Sincere defaults on bond
- City Developments reiterates ring-fencing of exposure to Sincere amidst bankruptcy proceedings
