CDL Strikes Deal to Acquire 51% Stake in Sincere Property, owner of Chengdu Hilton Amongst Other Properties

Main Photo: The Chengdu Hilton, a small part of this deal

Date: April 2020

Location: Singapore/China

Name: Sincere Property

No. of Keys: Hilton Chengdu – 298

Seller: Chongqing-based developer, Sincere Property Group (协信远创) after renegotiating an earlier loan to the mid-sized builder. The news comes just under one month after four domestic bonds issued by Sincere Property were suspended from trading for a day after the developer had failed to make payments on the instruments worth an aggregate RMB 2.6 billion.

Buyer: City Developments Ltd (CDL) has found opportunity in the COVID-19 crisis to expand its real estate holdings in mainland China by acquiring a majority stake in a Chongqing-based developer for an initial investment of RMB 4.39 billion ($621 million).

CDL’s agreement with Sincere is the second time this month that the developer controlled by billionaire Kwek Leng Beng has found a silver lining in this year’s downturn, after the Singapore firm paid a combined S$26.1 million ($18 million) through series of transactions to buy an 8.4 percent stake in Singapore-listed IREIT Global from mainland billionaire Tong Jinquan, who chairs Shanghai-based Summit Property Group.

“Our strategic partnership with Sincere Property marks a major milestone in CDL’s history and represents a game-changing investment for us,” Sherman Kwek, Group Chief Executive Officer at CDL said in a statement. He added that, “This deal will transform the Group’s scale and firmly establish CDL as a major player in China’s property sector.”

Following completion of the transaction, which is expected to take place this year, CDL would jointly control Sincere Group together with the mainland company’s Chairman Wu Xu.

With Sincere Property having been valued at RMB 16.48 billion at the end of 2019, per unaudited financials cited in the statement, CDL is acquiring its stake at a valuation of RMB 8.6 billion — nearly a 50 percent discount to the developer’s net asset value. In the first half of 2019 Sincere Property had achieved RMB 3.8 billion in operating income and had once ranked among China’s top 50 home builders.

The transaction provides CDL with access to cashflows from Sincere Property’s portfolio of 27 investment properties while also expanding the Singaporean firm’s mainland presence from its current three cities to 18. Among the investment properties held by the mainland firm are the Chengdu Hilton Hotel and the CHINT-TUS Harbor business park in Shanghai’s Songjiang district, as well as the Starlight 68@Sincere Centre mall and the Xinhua Sincere Center in Chongqing.

The terms of the deal also provide CDL with a call option to purchase an additional 9 percent effective interest in Sincere Property for RMB 770 million at the same valuation as today’s transaction. The Singapore firm will be able to exercise that call option at its discretion during a six month period that will commence either 18 months after the completion of the today’s deal or on 1 July 2022, whichever is later.

CDL today said that an earlier agreement to purchase equity in Sincere Property had not been completed, “due to a variety of factors.” Also this month, Singapore-listed GuocoLand, which is controlled by the cousin of CDL chairman Kwek Leng Beng, completed its own mainland deal, selling a Shanghai hotel to local developer Dahua Group for RMB 1.44 billion.

CDL made the investment with a view that, while the novel coronavirus disaster has hurt the cashflow of developers like Sincere Property, the ultimate potential of the mainland market remains appealing.

THPT Comment: He who has cash is King! Going to be some interesting deals to be done in the  next few months.

First Seen: Mingtiandi

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