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CDL director Kwek Leng Peck quits over differences with board

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Mr Kwek Leng Peck, 64, stepped down after more than three decades in the role.

Singapore

IN one of the most stunning corporate developments at City Developments in its more than 50-year history, its non-executive and non-independent director Kwek Leng Peck left the property giant on Monday, citing his disagreements with the board and management on the group's investment in a Chinese property group and its management of its British hotel arm.

The 64-year-old stepped down after more than three decades in the role.

He stated in his letter of resignation that he disagreed with the board and management in relation to the group's investment in Sincere Property Group in China as well as its continuing provision of financial support to Sincere.

He also had reservations with the group's approach in managing London-based wholly-owned unit Millennium & Copthorne Hotels (M&C).

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Mr Kwek quit as a director of M&C as well, concurrent with his resignation from the parent company.

He is the cousin of CDL executive chairman Kwek Leng Beng and the uncle of CDL's group chief executive and executive director Sherman Kwek, who is Leng Beng's son.

Mr Kwek Leng Peck is also a director of CDL's substantial shareholders Hong Realty (Private) Limited, Hong Leong Holdings Limited and Hong Leong Investment Holdings Pte Ltd. Including these three companies, he held directorships in about 80 entities as at Monday.

In a bourse filing on Wednesday, CDL noted that its investments in Sincere totalled about S$1.9 billion.

These include a 51 per cent joint-venture equity investment in the latter amounting to 4.4 billion yuan (S$896.8 million). It had also subscribed for US$230 million worth of bonds issued by Sincere, and provided a working capital loan of 650 million yuan.

The investments also include a 1.5 billion yuan liquidity-support undertaking provided by CDL for Sincere's bonds maturing on Oct 26, 2020, as well as a 1.5 billion yuan corporate guarantee in relation to an external bank loan obtained by Sincere.

"The liquidity position at Sincere is challenging, being severely impacted by the Covid-19 pandemic and the property cooling measures which caused the further tightening of liquidity for real estate companies in China," CDL said.

As a result, the asset divestment plan for some of Sincere's retail, hospitality, office and business park assets is now expected to take place over a longer period, it added.

The plan is meant to lighten Sincere's debt load on investment properties exposure and to shore up its residential development plans to transform its platform.

CDL also said it is in the process of identifying and appointing an external financial adviser to assist with further evaluation and review of the group's investment in Sincere. "The impact on the group or its financial reporting will be prepared and calibrated together with the external financial adviser," CDL said.

The most recent tightening of liquidity for property companies in China is what has been dubbed "Three Red Lines"; these refer to metrics regarding debt that developers will have to meet if they want to borrow more, as reported earlier this month by Bloomberg.

Developers wanting to refinance will be assessed against these thresholds. First, there will be a 70 per cent ceiling on liabilities to assets, excluding advance proceeds from projects sold on contract. Second, there is a 100 per cent cap on net debt to equity; and third, they must have cash on hand that is at least equal to, or more than, short-term borrowing.

Developers will be categorised based on how many limits they breach and their debt growth will be capped accordingly. "If all three are breached, the company won't be allowed to increase its debt in the following year," Bloomberg reported, citing a report by 21st Century Business Herald. If it passes all three, it can increase its debt a maximum of 15 per cent in the next year.

A Singapore stockbroking house property analyst said: "Right from the start, Sincere Group was not in a comfortable situation; it was highly geared. The Chinese government has been tightening on developers' debt and I think the 'Three Red Lines' may be the last straw.

"There are two ways to cure Sincere's high debt. One is to divest its assets, which is difficult at this point in time because they might not get the value they want. The other is for Sincere to get a cash injection to stay afloat so that the covenants are in line. For this, it will probably turn to its shareholders including CDL. Maybe Leng Peck feels this would be throwing good money after bad."

As for M&C, CDL noted that 2020 has been a difficult year for the hospitality and tourism sector.

In the first half of this year, the group's hotel operations segment recorded a substantial pre-tax loss of S$208.2 million, which included S$33.9 million of impairment losses in view of the coronavirus pandemic.

M&C, which owns, manages and operates over 145 hotels globally, was delisted from the London bourse in October 2019 after CDL completed its privatisation exercise.

Market watchers note that Mr Kwek Leng Beng is not shy of being seen as having a revolving-door policy or high turnover of chief executives at M&C.

"My feeling is there may be some disagreement over the appointment and the frequent changing of CEOs at M&C, on the way things are being run. My suspicion is that maybe Leng Peck wants somebody to have a runway over a period of time, which Leng Beng may not want," said the stockbroking house analyst.

Mr Kwek Leng Peck holds 43,758 ordinary shares of CDL.

CDL lifted its trading halt at 1.30pm on Wednesday. The stock tumbled 7.2 per cent or S$0.55 to finish the day at S$7.08.

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