One observer says the group could have better corporate governance, while another says its core businesses will remain unaffected

 

A BATTLE for board control erupted within property giant City Developments Limited (CDL) : C09 0% on Wednesday (Feb 26), pitting father and son against each other in the Kwek-family controlled company.

 

Executive chairman Kwek Leng Beng issued a dramatic four-page statement to media on Wednesday morning, saying that he had filed court papers on Tuesday to deal with the &ldquo attempted coup&rdquo &ndash by group chief executive and his son Sherman Kwek, Philip Lee, Wong Ai Ai and a group of directors acting with them &ndash to allegedly consolidate control of the board and the group.

 

In response, Sherman Kwek issued a statement &ldquo on behalf of the majority of the CDL board of directors&rdquo in the afternoon expressing disappointment that &ldquo our chairman and a minority of the CDL board have decided to take these extreme actions&rdquo and that recent changes to the board have &ldquo never been about ousting our esteemed chairman&rdquo .

 

On Wednesday night, the elder Kwek issued another statement which stated that Sherman Kwek&rsquo s group has &ldquo undertaken not to take any further actions regarding their attempted changes to the board committees and management of certain CDL&rsquo s subsidiaries, until further notice of court&rdquo .

 

Here are some quick takes from observers on the battle.

 

Tan Teck Leng, deputy chief investment officer at Phillip Capital Management

While this episode certainly brings into question succession issues at the company, real estate is one of those industries where the key value of the company is anchored by its hard assets and this does not change. 

 

The weakness in share prices of listed property developers over the past few years has been mostly across the board, not just at CDL. 

 

When positive attention comes back to this industry, such as a realisation that new Singapore residential launches continue to sell well, or through such catalysts as a remaking of Orchard Road, surely this remains one of the proxies the market would return to.

 

Mak Yuen Teen, corporate governance advocate and accounting professor at the National University of Singapore Business School

While CDL is often touted as a beacon of sustainability, its corporate governance can definitely be better.

 

The way it went into China a few years ago and then wrote off a huge amount very quickly and the boardroom turmoil at that time indicates governance cracks.

 

It&rsquo s an important reminder that family businesses need to focus on corporate governance if they want to survive through many generations. And sustainability must be built on a foundation of good corporate governance.

 

Ken Foong, analyst at Bloomberg Intelligence

CDL&rsquo s 2025 core profit could rise due to its three main businesses: housing, hotels and investment properties.

 

Yet in the near term, a boardroom tussle between its chairman and his son, its CEO, may create an overhang.

 

Long-term growth could come from expansion in the living sector amid its resilient earnings profile.

 

DBS Group Research

Given this uncertainty (dispute between chairman and CEO), we expect near-term volatility in the share price. However, a resolution should provide much-needed clarity for investors.

 

Our base case remains unchanged &ndash we believe the company&rsquo s core businesses (property development, hotels and investment properties) will remain unaffected, as they are hard assets generating revenue and cash flow, and are further supported by key management, including the chief operating officer, chief financial officer and group general manager.

 

We continue to monitor developments to assess the group&rsquo s longer-term capital allocation strategy, including mergers and acquisitions, land banking and divestments.

 

David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)

SIAS hopes that the board issue will be resolved amicably among the relevant parties in the best interest of all CDL stakeholders. It encourages the directors of CDL&rsquo s board to work towards a fair and constructive resolution.

DBS analysts say this has created uncertainty about CDL&rsquo s strategic direction in the near-term

ANALYSTS believe that the ongoing feud between CDL&rsquo s executive chairman Kwek Leng Beng and chief executive officer and his son, Sherman Kwek, could cause an overhang on the group&rsquo s share price in the near term.

 

Some analysts downgraded the company&rsquo s stock on Wednesday (Feb 26) and Thursday, checks by The Business Times showed.

 

JP Morgan on Wednesday downgraded its rating for the stock to &ldquo neutral&rdquo , with a price target of S$4.85. UOB Kay Hian on Thursday downgraded its rating for the counter to &ldquo hold&rdquo , with a target price of S$4.60. Morgan Stanley, meanwhile, reiterated its &ldquo underweight&rdquo call on the counter, with a price target of S$5. HSBC on Wednesday kept its &ldquo hold&rdquo call on CDL.

 

OCBC Investment Research has a &ldquo buy&rdquo call on CDL, but lowered its fair value estimate to S$6.02, from S$6.57. It widened its revalued net asset value (RNAV) discount to 60 per cent from 45 per cent.

 

The adjustments come as OCBC expects uncertainties over CDL&rsquo s outlook and potential share price overhang until the boardroom tussle is resolved.

 

DBS Group Research on Thursday slashed its target price on CDL to S$6.70 from S$10.50 previously.

 

The new target price represents a 60 per cent discount to RNAV, and it is higher than the sector average of 50 per cent.

 

Shares of CDL : C09 0% ended Tuesday 0.4 per cent or S$0.02 lower at S$5.12, before calling for a trading halt the next morning.

 

DBS analysts Derek Tan and Tabitha Foo said the boardroom tussle has created uncertainty about CDL&rsquo s strategic direction in the near-term.

 

Citi Research&rsquo s analyst Brandon Lee said on Wednesday that while the potential impact is &ldquo hard to quantify&rdquo , he believes that the boardroom tussle, as well as lengthiness of a potential court case, could weigh on share price in the short term.

 

The last major director departure had resulted in a 19 per cent share price decline in over two weeks, he pointed out.

 

That said, both Citi&rsquo s Lee and DBS&rsquo analysts are still optimistic that CDL&rsquo s share price could recover in the long-term, following a resolution of the feud.

 

DBS&rsquo Tan and Foo believe that CDL&rsquo s &ldquo fundamentals remain intact&rdquo as key management like its chief operating officer and chief financial officer continue to run the company.

 

They also expect the property giant to &ldquo focus on driving shareholder returns and profitability&rdquo , following a resolution, and therefore support a &ldquo gradual recovery&rdquo in the group&rsquo s share price.

 

Amid optimism that CDL&rsquo s core business will remain unaffected by the board tussle, DBS analysts maintained their &ldquo buy&rdquo call on the counter.

 

CDL&rsquo s core business, which includes property development, hotels and investment properties, are &ldquo hard assets generating revenue and cash flow&rdquo , said the analysts.

 

Citi&rsquo s Lee also kept his &ldquo buy&rdquo call on CDL. &ldquo We believe CDL is very under-owned by investors, hence any positive resolution would be a major share price catalyst longer term,&rdquo added the analyst.

 

He also noted that Citi&rsquo s valuations on CDL, which represents 0.3 times price-to-book ratio and 68 per cent RNAV discount, are &ldquo undemanding&rdquo .

 

To recap, executive chairman Kwek Leng Beng said he had filed court papers to deal with an &ldquo attempted coup&rdquo &ndash by group CEO and son Sherman Kwek, Philip Lee, Wong Ai Ai and a group of directors acting with them &ndash to allegedly consolidate control of the board and the group.

 

According to the elder Kwek, Sherman Kwek&rsquo s group had orchestrated major board changes and bypassed the nomination committee, contrary to corporate governance principles and the Singapore Exchange&rsquo s listing rules.

 

CDL on Wednesday said that &ldquo business operations remain fully functional and unaffected&rdquo . It added that Sherman Kwek remains the &ldquo group CEO until such time as there is a board resolution to change company leadership&rdquo .

 

Subsequently, Kwek issued a statement at 11.34 pm saying that &ldquo following a court hearing today, the serious lapses of corporate governance at CDL (together with its subsidiaries) have now been halted&rdquo .

 

Despite the ongoing power tussle, analysts are also optimistic that CDL&rsquo s profit could rise in FY2025.

 

While the group&rsquo s FY2024 results missed the estimates of DBS&rsquo analysts, both Foo and Tan believe that there are &ldquo multiple tailwinds for the group in the coming years&rdquo .

 

CDL posted a net profit of S$201.3 million for FY2024, down 36.6 per cent on the year, driven by its property development segment which recorded &ldquo substantially lower contributions&rdquo .

 

They see &ldquo good earnings visibility on the back of largely pre-sold residential projects in Singapore and a pipeline of residential projects&rdquo .

 

Foo and Tan also expect CDL&rsquo s hospitality sector to deliver &ldquo strong returns&rdquo , driven by steady revenue per available room growth, as well as rising travel demand.

 

Similarly, while Bloomberg Intelligence&rsquo s Ken Foong said CDL&rsquo s boardroom tussle could create an overhang in the near term, he is still positive that CDL&rsquo s bottom line could be boosted by its housing, hotels and investment properties segments.

 

CDL&rsquo s residential unit could be aided by higher contributions from projects that will obtain temporary occupation permits this year, added Foong.

CDL group chief executive Sherman Kwek says the &ldquo primary reason&rdquo for the ongoing dispute at the property behemoth relates to &ldquo a very serious issue of corporate governance&rdquo involving Dr Wu

 

CITY Developments Ltd (CDL) group chief executive Sherman Kwek highlighted a Dr Catherine Wu on Thursday (Feb 27) in his latest response in the &ldquo attempted coup&rdquo saga that broke in the public arena the day before.

 

In a detailed statement, he said the &ldquo primary reason&rdquo for the ongoing dispute at the property behemoth relates to &ldquo a very serious issue of corporate governance&rdquo involving Dr Wu, adviser to CDL executive chairman and his father Kwek Leng Beng.

 

He cited Dr Wu as holding an official position as adviser to the board of Millennium & Copthorne Hotels (M& C), a wholly owned and principal subsidiary of CDL.

 

&ldquo (She) has been interfering in matters going well beyond her scope, and she wields and exercises enormous influence. These matters have troubled us as directors,&rdquo he said.

 

Sherman Kwek added that Dr Wu has a &ldquo long relationship&rdquo with the senior Kwek, and that &ldquo efforts that were made to manage the situation were done sensitively, but to no avail&rdquo .

 

Taiwanese celebrity

According to an interview that Dr Wu gave to Zaobao in August 2024, she hails from Taiwan and has a doctorate in music education from New York University.

 

When Dr Wu was 15 years old, her parents sent her to the San Francisco Conservatory of Music in the United States.

 

She subsequently won a scholarship in the United States and enrolled at The Juilliard School in New York for further studies.

 

She obtained a master&rsquo s degree in piano performance from The Juilliard School in 1982 and went on to obtain a doctorate from New York University.

 

After earning her PhD and living in the US for 15 years, she returned to Taiwan and released several music albums as well as hosted a well-known music TV programme.

 

She first met Kwek in Taiwan in 1992, at a dinner party.

 

&ldquo I didn&rsquo t expect that this chance encounter would change my life&rdquo , Dr Wu said in the Zaobao interview.

 

Recounting that encounter, she said: &ldquo He asked me all kinds of questions, one second asking about politics and economics, the next second talking about music, the questions jumped back and forth. He seemed to be interviewing me to see if my mind was flexible and if my answers were consistent. Fortunately, I answered them well.&rdquo

 

Relocation to Singapore

Dr Wu, who is single, moved to Singapore in 1992.

 

She shared her reasons for the relocation in the interview: &ldquo I felt that Singapore&rsquo s fusion of Chinese and Western cultures was very suitable for me. In addition, I was somewhat famous in Taiwan at the time, and everyone paid a lot of attention to me. I wanted to move to a place where people didn&rsquo t know me, so that life would be easier.

 

&ldquo At the time, I was still doing shows and releasing albums. Singapore is not far from Taiwan, so it was easier to fly back to Taiwan for work.&rdquo

 

She devoted herself to early childhood education in the early 2000s, running a kindergarten for 10 years, Dr Wu sold the business and became more active in various aspects of hotel management.

 

She then became the chief secretary of Kwek&rsquo s office, participating in the management of the group&rsquo s hotels around the world.

 

Into cybersecurity

In recent years, Dr Wu has entered the field of cybersecurity.

 

Seeing the increasingly serious cyberattacks by hackers, she became interested in cybersecurity and introduced the GeekCon cybersecurity competition and conference to Singapore in May last year. Kwek fully supported this cause and serves as an honorary consultant for GeekCon.

 

Dr Wu is secretary-general of GeekCon International, an initiative of Dark Navy, an independent security research institute.

 

She has been interviewed by the media about the latest cybersecurity trends and issues affecting Singapore and the region, as well as how pioneering research in such issues has attracted thousands of white-hat hackers and security researchers. 

Dr Wu, who is said to have a &lsquo long relationship&rsquo with CDL executive chairman, is accused of interfering in matters well beyond her scope

 

THE &ldquo primary reason&rdquo for the ongoing dispute at City Developments Ltd (CDL) is &ldquo a very serious issue of corporate governance&rdquo involving Dr Catherine Wu, Kwek Leng Beng&rsquo s adviser, said group chief executive Sherman Kwek in a statement on Thursday (Feb 27) evening.

 

He cited Dr Wu as holding an official position as adviser to the board of Millennium & Copthorne Hotels (M& C), a wholly owned and principal subsidiary of CDL.

 

&ldquo (She) has been interfering in matters going well beyond her scope, and she wields and exercises enormous influence. These matters have troubled us as directors,&rdquo he said.

 

Sherman Kwek added that Dr Wu has a &ldquo long relationship&rdquo with his father, CDL executive chairman Kwek Leng Beng, and that &ldquo efforts that were made to manage the situation were done sensitively, but to no avail&rdquo .

 

Dr Wu is said to have been a personal assistant to Kwek Leng Beng, according to a 2018 employment tribunal document filed in London. PHOTO: BT FILE

&ldquo &ldquo (She) has been interfering in matters going well beyond her scope, and she wields and exercises enormous influence.&rdquo

&mdash

Sherman Kwek, CDL group CEO, referring to Dr Wu

&ldquo This led us, with the benefit of legal advice, to propose a resolution to terminate the advisory agreement Dr Wu has with the board of M& C,&rdquo he said.

 

Another resolution was to affirm that Dr Wu has no power and authority, among other things, to influence or advise the directors, management and staff of the CDL and M& C groups. Both resolutions were passed by a majority of the board on Feb 21.

 

&ldquo We considered them to be necessary to protect the interests of the shareholders and relevant staff of the CDL Group, and to restore proper corporate governance and accountability,&rdquo said Sherman Kwek.

 

His statements are the latest salvo in the ongoing father-and-son tussle for the control of CDL.

 

The saga erupted on Feb 26, after Kwek Leng Beng said that he had filed court papers on Tuesday to deal with an &ldquo attempted coup&rdquo &ndash by his son, board members Philip Lee Jee Cheng and Wong Ai Ai, as well as a group of directors acting with them.

 

In particular, the elder Kwek questioned the appointment of two new directors &ndash Jennifer Duong Young and Wong Su Yen &ndash that he alleged was done without due diligence and proper vetting.

 

According to Kwek Leng Beng, his son&rsquo s group had bypassed the nomination committee, contrary to corporate governance principles and the Singapore Exchange&rsquo s listing rules.

 

The elder Kwek issued a second statement at 11.34 pm on Feb 26, saying that after a court hearing that day, &ldquo the serious lapses of corporate governance at CDL (together with its subsidiaries) have now been halted&rdquo .

 

&ldquo The two new directors, irregularly and hastily appointed on Feb 7, by means of Directors&rsquo Resolutions in Writing, have undertaken not to exercise any powers as directors until further notice of the court,&rdquo the second statement had said.

 

&ldquo Ambush&rdquo

In his Feb 27 statement, Sherman Kwek alleged that his father&rsquo s statements &ldquo sadly do not present the full picture&rdquo and that there &ldquo has been no attempt by us to oust the chairman&rdquo .

 

He said that his father and other minority directors &ndash Philip Yeo, Colin Ong and Chong Yoon Chou &ndash had tried to get the court to grant interim injunctions to restrain the &ldquo majority directors&rdquo , comprising six independent directors and himself.

 

The interim injunctions were also to restrain two independent directors from exercising powers as directors and to reverse a number of resolutions that had been passed by the majority directors on the board of CDL.

 

&ldquo It has not been disclosed that the minority directors&hellip served five of us court papers just after noon on Feb 26 for a hearing that was held only two-and-a-half hours later,&rdquo Sherman Kwek said in the statement.

 

The CEO also said that his father&rsquo s second statement &ndash suggesting that the minority directors succeeded in their application and that lapses of corporate governance have been halted &ndash was &ldquo most unfortunate&rdquo .

 

In fact, he said, the minority directors had failed in their application to reverse the resolutions that were passed.

 

&ldquo What in fact happened was that because the majority directors did not have the opportunity to present our case, we voluntarily offered undertakings, as defendants often do in such urgent applications, to preserve the status quo until a full hearing where we would have that opportunity,&rdquo said Sherman Kwek.

 

&ldquo As a result, the court recorded our undertakings that we would not take any further action for the time being in relation to a number of the resolutions that had been passed, and undertakings from two independent directors that they would not for the time being exercise powers as directors of CDL,&rdquo he added.

 

Sherman Kwek said that the court &ldquo made it a point to say it was not making any substantive orders on the minority directors&rsquo application&rdquo , adding that this detail was not in his father&rsquo s second statement.

 

&ldquo Nor was there any mention by the chairman of the fact that the lawyers for the minority directors were questioned by the court about whether they had been validly appointed by CDL, leading them to say that they would &lsquo leave out CDL&rsquo for the hearing,&rdquo said the CEO.

 

Sherman Kwek added that &ldquo it was we who asked for the full hearing to be held early, and that the court agreed&rdquo .

 

&ldquo (Despite) the attempt to ambush us, the minority directors did not succeed in persuading the court to hear and decide the merits, and in fact ended up on the receiving end of directions themselves and unable to use CDL&rsquo s name at the hearing,&rdquo he said.

 

Sherman Kwek and the six directors in his group have appointed a legal team led by Julian Tay of Lee & Lee. The six directors are Lee, Wong Ai Ai, Daniel Desbaillets, Carolina Chan, Wong Su Yen and Young.

 

CDL, Kwek Leng Beng, and three other directors &ndash Yeo, Ong and Chong &ndash are represented by Senior Counsel Lok Vi Ming of his own firm LVM Law Chambers.

 

Dr Wu is said to have been a personal assistant to Kwek Leng Beng, according to a 2018 employment tribunal document filed in London. The document said that she was paid directly by the elder Kwek.

 

CDL shares have been under a trading halt since Feb 26.

Share price is deeply undervalued, could father-son tussle lead to restructuring or a merger?

 

Investors buy into listed groups where families hold major stakes and are active in management, partly because they see families with skin in the game taking the long-term view in growing the business.

 

However, families are prone to conflict &ndash and discord within billionaire business families makes for especially good drama but can hugely damage a company&rsquo s business prospects.

 

In 2020, non-executive director Kwek Leng Peck left City Developments Ltd : C09 0% (CDL), which is a member of the benchmark Straits Times Index, after more than three decades in the role, citing disagreement with the board and management on the group&rsquo s investment in Chinese firm Sincere Property Group, and reservations over the management of the UK-based hotel arm.

 

He is the cousin of CDL&rsquo s executive chairman Kwek Leng Beng, who also heads Hong Leong Investment Holdings (HLIH) and is ranked among Singapore&rsquo s richest by Forbes. HLIH holds a direct and deemed interest of more than 49 per cent in CDL. 

 

On Feb 26, bombshell news emerged that Kwek Leng Beng had filed court papers to deal with the &ldquo attempted coup&rdquo by Sherman Kwek, Philip Lee Jee Cheng, Wong Ai Ai and directors acting with them to allegedly consolidate control of the board and the group.

 

Kwek Leng Beng wants to remove his son Sherman as CDL&rsquo s group chief executive officer, citing the latter&rsquo s circumventing of corporate governance laws.

 

He also said that since Sherman Kwek became CEO in 2018, there have been serious missteps, including the Sincere Property debacle that led to a S$1.9 billion loss for CDL in 2020, and poor investment decisions in the UK property market.

 

Kwek Leng Beng wants his nephew &ndash CDL&rsquo s chief operating officer Kwek Eik Sheng &ndash to be interim CEO and a professional CEO to be appointed. 

 

Late on Feb 26, Kwek Leng Beng said CDL&rsquo s new independent directors Jennifer Duong Young and Wong Su Yen, who were &ldquo irregularly and hastily appointed&rdquo on Feb 7, have undertaken not to exercise any powers as directors until further notice of the court.

 

Sherman issued a statement late on Feb 27 on behalf of the majority of CDL&rsquo s board stating that the primary reason for the dispute with the chairman relates to &ldquo a very serious issue of corporate governance&rdquo within the CDL group arising from the conduct of Dr Catherine Wu, who has a &ldquo long relationship with the chairman&rdquo .

 

Adverse impact

How CDL&rsquo s board may change going forward could depend to a large extent on how HLIH and entities linked to it vote on board appointments.

 

What is doubtless is that the family feud hurts CDL&rsquo s reputation and business prospects. Decision-making could slow down, thereby affecting ongoing operations, as well as investments, divestments and asset rejuvenations.

 

Staff morale may be strained and, worse, staff might be caught in the cross hairs of the father-son fight. Will top talent want to join CDL while there is much uncertainty at the highest echelon? Uncertainty can also affect staff retention.

 

Sure, CDL owns high-quality assets. However, the group cannot afford major distractions.

 

Competition for choice sites in Singapore is fierce, margins on housing developments here are generally thin, overseas forays need to be carefully judged, and capital must be assiduously managed given global economic uncertainties, and how interest rates may not fall much further. Also, innovation and attention to detail are needed to drive outperformance from investment properties and property development projects.

 

In short, top management has to focus laser-like on the business, and be at the top of its game for CDL to fight the competition.

 

CDL&rsquo s share price is poor. As at Feb 25, the counter traded at S$5.12 or a discount of 50 per cent to end-2024 net asset value (NAV) of S$10.17, and 74 per cent to restated NAV of S$19.86 if fair value gains on investment properties and hotels were included.

 

Damagingly, the board tussle might undermine CDL&rsquo s investor relations efforts, and hold back the board from urgently coming up with concrete plans to optimise shareholder value.

 

Catalyst

Nonetheless, might the father-son feud actually help catalyse value-unlocking moves at CDL?

 

Resolving the Leng Beng-Sherman tussle could be a precursor to the prevailing party acting quickly with the support of the board and management to wow the stock market with bold value-unlocking moves.

 

For example, CDL can restructure by splitting the property development business from the investment property and hotel businesses. Also, the group can aggressively inject assets into listed and unlisted funds, and significantly scale up in fund management.

 

If 84-year-old Kwek Leng Beng is firmly in the driver&rsquo s seat, he can try cementing his long legacy at CDL with a bold restructuring that makes the group a stock-market darling.

 

Alternatively, the father-son feud may cause unease among other Kwek family members, and potentially lead some of them to seek an exit for their interest in CDL. Could Kwek Leng Beng, possibly working alongside financial partners, offer to privatise CDL at a juicy premium to its trading price?

 

Maybe shareholding control of CDL will be up for grabs, in which case shareholders including the Kweks might see a third party paying around restated NAV for the group.

 

Intriguingly, a family solution could come from Kwek Leng Beng&rsquo s cousin, Malaysian tycoon Quek Leng Chan. A friendly merger with GuocoLand : F17 0%, where Quek is chairman and a major shareholder, will create a potent force in the Singapore property scene.    

 

CDL has come far since its founding in 1963 when the group began in a small, rented office in Amber Mansions with eight employees. Its success can be attributed largely to the Kwek family&rsquo s leadership. In 1972, the Hong Leong Group, then helmed by Kwek Leng Beng&rsquo s father Hong Png, acquired a controlling stake in CDL.

 

Family woes now cast an ugly shadow over CDL, which through the years has built a strong reputation with many homebuyers here and counterparties.

 

Ultimately, the business today has a strong platform. Shareholders may need to hold their nerve and hope business performance does not take a huge hit from the family feud. In fact, there is a silver lining if the feud catalyses bold value-unlocking moves that boost CDL&rsquo s deeply undervalued stock price.

Who is Catherine Wu, adviser to CDL&rsquo s Kwek Leng Beng? 

 

来 了 来 了 , Dr Catherine Wu...