Business Maverick

Business Maverick

Singapore Developer Spats With China Unit After Bond Lapse

A guest swims in the Skypark pool atop Las Vegas Sands Corp.'s Marina Bay Sands integrated resort and casino in Singapore, on Wednesday, July 28, 2010. Singapore's government, which has to hold an election by 2012, may find that record economic growth isn't enough to keep citizens happy as the nation turns 45. Photographer: Munshi Ahmed/Bloomberg via Getty Images

An escalating feud between Singapore’s richest property family and its troubled Chinese unit is underscoring the challenges for foreign companies making acquisitions in the world’s second-largest economy.

On Wednesday, Chongqing Sincere Yuanchuang Industrial Co. said its parent City Developments Ltd. delayed decision making, stalling opportunities to raise funds and improve cash flow. CDL responded late Thursday by saying that Sincere’s message contained incorrect information which could mislead people to believe it should take primary responsibility.

The emerging rift came after Sincere missed a deadline to repay a bond that matured earlier this week, according to investors. The public discord is a reversal of what started off as a promising relationship. When CDL took control last year, it dubbed the deal as “game changing” for its expansion in China but it has since written down most of its S$1.9 billion ($1.4 billion) investment.

Sincere said that CDL “severely affected” its ability to use fundraising and asset disposals to improve operations and cash flow. In a statement on its website, the Chinese developer said the problem stemmed from CDL’s refusal to let Sincere’s management and board handle key decisions, instead requiring that the parent’s headquarters in Singapore sign off on important matters.

Read more
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Singapore’s Top Developer Woes Grow Over China Investment

In its response, CDL described Sincere as a joint venture and said the legal structure of the entity doesn’t give the Singapore firm majority control of board decisions. It said it was “deeply concerned” that Sincere issued the statement and that it came without any prior consultation.

Sincere paid interest on Thursday for its bond due Tuesday, though investors are still waiting for a principal payment of 444.5 million yuan ($68 million), according to two bondholders who aren’t authorized to speak publicly and asked not to be identified. China Lianhe Credit Rating downgraded Sincere to B from BB following the missed payment.

CDL said in a statement that liquidity issues at Sincere were inherent even before its investment.

“There have been occasions where CDL could not support Sincere Property management’s recommendations as they contravened CDL’s corporate governance as a listed company and the recommended use of funds were not in the best interest of all shareholders,” it said.

Back when the deal to acquire 51% of Sincere was signed last April, CDL’s Chief Executive Officer Sherman Kwek hailed the relationship between the companies, saying he had known the Chinese firm’s founder and chairman Wu Xu for 10 years.

But when CDL reported the S$1.78 billion writedown last month, Chairman Kwek Leng Beng — Sherman’s father — hinted that things weren’t going smoothly. CDL still has to get Wu’s consent before it can monetize Sincere’s numerous assets, he said.

“He has a different view from us,” Kwek said, hoping that Wu will cooperate with CDL. Nevertheless, Kwek expressed optimism that Sincere could become “a very ideal entity that everybody wishes to buy.”


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