Hong Leong Investment Holdings (HLIH) has been pushed into the spotlight. It is either the parent or the grandparent of the Kwek-Quek clan’s listed entities in Singapore, Malaysia and Hong Kong. Table 1 shows its financial snapshot.
Analysts reckon that GuocoLand could play a key role in the restructuring of City Developments (CDL) because Davos Investment Holdings owns the largest single stake in the local developer with 33.6% (see Table 4).
Davos itself has a few shareholders. They are Quek Leng Chan, Quek Leng Chee, Kwek Leng Kee, Quek Leng Chye, Kwek Leng Hai, Kwek Kon Yew and Kwek Kon Eng. As of end-December 2023, HLIH’s net as set value stood at $37.1 billion.
Should there be a split between Kwek Leng Beng and Sherman Kwek, both of which own shares in Kwek Holdings, HLIH’s second-largest shareholder, Davos could have the opportunity to acquire additional stakes to get it to 50%.
The shareholders of Davos would need to cough up an additional $10.8 billion to acquire control of HLIH. Would the buyer of Kwek Holdings need to pay a control premium? Probably. As an example, a 20% premium would translate into $12.9 billion.
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If HLIH were a listed entity, it would probably trade at a discount to its NAV because of the holding company or conglomerate discount. Similarly, listed companies that HLIH has a deemed interest in, such as GuocoLand, Guoco Group, Hong Leong Financial Group and CDL, are also trading at discounts to their NAV.
The companies within the Kwek-Quek clan that trade at premia to NAV are the op erating companies such as Hong Leong In dustries, Hume Cement and Malaysian Pacific Industries.
Kwek Holdings, controlled by Kwek Leng Beng, Sherman Kwek, Kwek Eik Sheng and Brian, Eik Sheng’s younger brother, owns 29% of HLIH, with the remaining 37% held individually by clan members.
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Kwek Leng Beng’s younger son Kingston is nowhere to be found in the web of holdings of the Kwek clan.
No longer status quo for HLIH
Between them, the Kwek and Quek clans own listed and unlisted entities in Singapore, Malaysia and Hong Kong through HLIH. At the simplest level, HLIH owns substantial stakes in CDL, Hong Leong Asia and Hong Leong Finance in Singapore.
In Malaysia, HLIH owns stakes in Hong Leong Industries, Hong Leong Bank, Malaysian Pacific Industries and Hong Leong Industries, among others. HLIH also holds a major stake in Guoco Group, which sold Dao Heng Bank to DBS Bank in 2002 for $10 billion.
There is double counting because Hong Leong Financial Group is the holding company of Hong Leong Bank, and Guoco Group in Hong Kong also holds stakes in Quek Leng Chan’s listed entities in Malaysia.
Companies such as GuocoLand and Rank Group PLC are held via Guoline Capital Assets. HLIH has a controlling interest of 34.49% in Guoline Capital and Davos has a controlling interest of 33.59% in HLIH.
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For the past several decades, Quek Leng Chan seemingly controlled the Malaysian and Hong Kong companies and Kwek Leng Beng controlled the Singapore-listed companies (excluding GuocoLand).
JP Morgan analysts Mervin Song and Terence Khi have already said it is unclear who the broader Kwek-Quek clan supports, given that HLIH — an agglomeration of different Kweks and Queks (see Table 4) — can vote out the chairman, CEO and directors and vote in their replacement. Would CDL be better served with a non-executive chairman from the clan? This is how GuocoLand and the companies listed in Malaysia are structured.
Quek Leng Chan has proven to be very nimble. Analysts and market watchers believe he could pounce on HLIH at some point. Recently, Forbes valued Quek Leng Chan at the equivalent of US$9.05 billion ($12.74 billion).
Different management styles
Song and Khi of JP Morgan have also brought up the idea of CDL merging with GuocoLand. The major difference between them is that the Malaysian Quek-Kwek clan are non-executive directors and chairman of the board, leaving management to run the day to-day operations. This is evident in GuocoLand, where, in true Warren Buffet-style, Quek Leng Chan is the non-executive chairman.
Quek Leng Chan is also the non-executive chairman of both Hong Leong Financial Group and Hong Leong Bank. Kenny Lam, CEO of Hong Leong Bank, is an old banking hand, having held C-suite positions at United Overseas Bank in Indonesia and, subsequently, as head of TMRW Digital Bank.
Kwek Leng San is a non-executive chairman of the industrial entities Southern Steel, Hong Leong Industries, Hume Cement and Malaysia Pacific Industries. Only Kwek Leng Hai is the executive chairman of Guoco Group. He is also chairman of Lam Soon.
Kwek Leng Beng likes to be hands-on, as evidenced by his statement on Feb 26. “I take my role as executive chairman seriously and have always prioritised the interests of all shareholders, not just those of my family,” he said in a press release.
Blame game
In addition to the Sincere Property Group write-off, Kwek Leng Beng also said poor investment decisions in the UK property market resulted in significant financial losses, contributing to a 94% profit decline in 1HFY2023 ended June 2023 for CDL, a point he repeated in a press release dated March 4.
In 1HFY2023, CDL booked a $33.5 million impairment on its investment properties in the UK. These are likely to have been the office properties on Broad Street and Aldgate due to the accelerated interest rate cycle.
Whether the impairment is likely to be small change compared to the impairment for the unproductive UK property that has been sitting on CDL’s books for more than 12 to 13 years remains to be seen.
Before Sherman Kwek was made CEO, CDL acquired around $1 billion worth of UK properties that were intended to be developed into residential units for sale.
In addition to CDL, which is his flagship company, Kwek Leng Beng is executive chairman of Hong Leong Asia and Hong Leong Finance. Often, a non-executive chairman’s role is a leadership role, providing oversight and representing the interests of shareholders. An executive chairman has executive responsibilities and often gets into the minu iae of managing.
Kwek Leng Beng, who was always present in CDL’s results briefings over the years, was often quite voluble during these events. To date, UOL Group’s non-executive chairman Wee Ee Lim and CapitaLand Investment’s (CLI) non-executive chairman Miguel Ko have not attended results briefings.
The CapitaLandisation of City Developments?
However, if there is a reorganisation of the Kwek-Quek clan’s shareholding structure of the Singapore-listed companies, CDL could become more capital-efficient.
Surely, the hotel portfolio could be sold. Hospitality may have been a favourite with Kwek Leng Beng, but being income generating, hotels can be easier to securitise compared to the unproductive residential assets
In May 2023, CDL acquired the Hilton Paris Opéra hotel from funds managed by Blackstone for EUR240 million. In March 2023, CDL acquired St Katharine Docks, London, also from Blackstone funds, for GPB395 million.
Kwek Leng Beng has spoken fondly of the unproductive London properties with a particular soft spot for Richmond on Thames. These properties need to receive planning permission, developed and sold, or just sold. A third party may find it easier to make the decision to sell as these properties are close to Kwek Leng Beng’s heart.
Among the directors of Kwek Holdings is Patricia Yeo, a granddaughter of Kwek Hong Png and niece of Kwek Leng Beng. It is still a mystery as to why, when CDL attempted to start a fund management business, it used private equity deals created by Grant Kelley, a sometime CEO.
Patricia Yeo’s husband, Suchad Chiaranussati, has partnered with CLI. In November 2024, CLI announced plans to acquire a 40% stake in Suchad’s SC Capital Partners Group (SCCP) for $280 million and the remaining stake in SCCP in phases over the next five years, subject to the fulfilment of conditions. Notably, SC Capital is the manager and sponsor of a J-REIT with hospitality assets.
As part of the partnership, CLI will also invest a minimum strategic capital of $524 million in SCCP’s fund strategies to support the growth of the platform.
Should this be the kind of model that CDL could have explored for its unproductive UK properties? Those properties could have been classified as brownfield, value-add, opportunistic or some other fancy word used by private equity.
Instead, former CEO Kelley created profit participation securities out of CDL’s Singapore assets, most of which were income-producing, perhaps with the exception of unsold units at The Residences at W Sentosa Cove.
At any rate, Sentosa Cove’s residential properties do not attract developers ABSD, and CDL could have taken its time to divest them.
If Quek Leng Chan controlled CDL, he would probably introduce professional management or a strategic review to identify the assets that could be easily monetised. Among CDL’s investment properties are Republic Plaza and City Square Mall. Delfi Orchardi, along with Orchard Hotel, can be redeveloped to take advantage of any URA incentive scheme. CDL Hospitality Trusts owns Orchard Hotel.
In an update, CLSA says CDL fell short of its $1 billion asset recycling target by 40%, resulting in a lower 2024 dividend of 10 cents (down from 12 cents) in FY2024. “An easing rates outlook is supportive of asset recycling this year while we believe robust home sales should support earnings. Management is in the midst of a board re-composition post the announced plans to replace CEO Sherman Kwek. The stock is trading at trough valuations,” CLSA says.
The $12-billion question analysts are asking is if Sherman Kwek were to be replaced as CEO, would he throw in his 14% in Kwek Holdings with Davos’s 33.6% in HLIH? Kwek Leng Peck, with 7.8% of HLIH, reportedly resigned from the CDL board because of both the Sincere Property Group loss and “M&C”. What would it take to get Davos to 50%?
Or, is blood thicker than water, and every one kisses and makes up?
Clarification note: An earlier version of this story misquoted Cheng Hsing Yao, group CEO of GuocoLand, which we have removed.
