On March 10, Bloomberg carried a news item which said no payment had been made towards a bond from Chongqing Sincere Yuanchuang Industrial, a unit of Sincere Property Group, with RMB444.5 million ($91.9 million) outstanding that matured on March 9, based on quotes from two bondholders. “The firm’s failure to repay on schedule would constitute a default,” said Bloomberg, according to the bond prospectus seen. On March 11, Bloomberg reported that interest on the bond has been paid, but not the principal.

Also on March 10, Sincere Property Group implied on its website that City Developments, which holds a 51.01% stake in Sincere, was tardy in making decisions related to financing, in effect laying the blame for the bond defaults at CDL’s feet. Sincere claimed in its statement that CDL is its parent. During a results briefing on Feb 26, CDL's management had reiterated that its balance sheet was ring-fenced from Sincere Property. 

On the evening of Mar 11, CDL issued a statement, which clarified that “CDL in fact holds a joint controlling equity stake in the Chinese developer. Under the agreed legal structure of this JV, Sincere Property Holdings (SPHL), a company controlled by Sincere Property’s founder, and CDL will jointly control the JV on its material decisions while the existing operation team set up by SPHL previously continues to exercise direct oversight of its day-to-day operations and worksite matters.”

In its statement, CDL says 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.

“Sincere Property has mis-represented the circumstances, the actions surrounding the investment, the relationship between both parties and CDL’s efforts to engage the JV partners to deal proactively with the challenging operating environment,” CDL’s Mar 11 statement says.

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The local developer goes on to point out that Sincere Property faced problems before CDL came on the scene. Sincere Property’s high growth strategy was disrupted by the pandemic, and the Chinese government’s intent to impose three red lines to curb excessive borrowing.

Analysts are still studying the implications of the Sincere Property and CDL announcements. They are wondering in the midst of the recriminations, whether CDL will continue with its working group to improve the liquidity and profitability of Sincere Property. CDL said it will continue to adhere to high standards of disclosure even as it continues to engage its JV partner. The statement added that CDL will take all necessary steps, including legal actions, to ensure corporate transparency and good governance.