City Development Limited (CDL) says it expects to make provisions for a “material impairment loss” on its investment in Sincere Property on Jan 21, given the “ongoing unprecedented challenges” for China’s real estate market.

The announcement comes as the findings of the review by Deloitte & Touche have been matched with the preliminary findings from the audit of Sincere Property as at April 30, 2020.

Deloitte & Touche was the external financial advisor appointed by the property group on Nov 4, 2020, to assist the group in evaluating and reviewing its 51.01% joint venture (JV) equity investment in China-based Sincere Property Group.

See: CDL appoints Deloitte & Touche as external financial advisor to evaluate investment in Sincere Property Group and CDL appoints special working group to review and improve liquidity and profitability for Sincere Property Group

CDL says it is still in the process of finalising the complete audit of Sincere Property.

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The final quantum of impairment cannot be determined yet, as the group is in the process of restructuring some assets, and the situation remains “fluid”.

The group says it will disclose detail of its financial performance when it announces its financial results for the FY2020.

As at Dec 31, 2020, CDL’s total investment in Sincere Property stands at $1.8 billion.

According to the company, it has not provided any further liquidity support or corporate guarantees to Sincere Property since.

“Apart from the challenges imposed by the pandemic, China’s ‘three red-lines’ rule restricting bank borrowing for real estate firms is expected to have significant impact on all Chinese developers,” says CDL in a Jan 21 statement.

“The deterioration in market conditions, ongoing uncertainty and regulatory restrictions have disrupted and negatively impacted Sincere Property’s operations and performance in the near-term. Furthermore, poor market conditions have derailed the intended divestment plan for some of Sincere Property’s retail and hospitality portfolio to reduce its debt, exacerbating the liquidity challenge it currently faces,” it adds.

Shares in CDL closed 4 cents higher or 0.5% up at $7.68 on Jan 21.