City Developments Limited: A Governance Crisis Eroding Shareholder Value

The share price of City Developments Limited (CDL) has plummeted by 60% since 2018, a decline that cannot be attributed solely to market cycles. Instead, the root causes lie in a toxic brew of corporate governance failures, family-led leadership instability, and a string of catastrophic strategic missteps. This article examines how CDL's internal turmoil—centered on the Kwek family feud—has eroded investor confidence, jeopardized financial stability, and created a high-risk environment for shareholders. The conclusion remains clear: exit CDL holdings until governance reforms and leadership clarity are established.

The Governance Breach: A Family Feud Unleashed

The crisis reached its zenith in early 2025 when patriarch Kwek Leng Beng accused his son Sherman Kwek (CEO) of orchestrating an “attempted coup” to consolidate power. Sherman bypassed the Nomination Committee to appoint two independent directors via a written resolution, a move the father alleged violated Singapore Exchange (SGX) listing rules. The fallout led to a court-ordered standstill, halting further governance changes until an April 2025 hearing.

This breach of corporate governance norms—where familial power struggles override institutional checks—has left investors questioning CDL's ability to operate as a professionalized firm. Despite CDL's claim of ranking #2 in Singapore's governance rankings for 2024, the incident exposed systemic vulnerabilities. Shareholders now face a binary outcome: either the court sides with the patriarch, destabilizing Sherman's leadership, or the CEO's faction prevails, risking further boardroom conflict. Either way, long-term uncertainty persists.

Strategic Missteps: From Sincere Property to UK Flops

The governance chaos is compounded by a history of ill-conceived investments:

1. Sincere Property Debacle (2019–2021):
   Sherman spearheaded a S$1.9 billion investment in China's Sincere Property Group, a move marketed as a gateway to China's real estate market. The venture collapsed due to Beijing's regulatory crackdown on property speculation and pandemic disruptions. CDL wrote off the entire investment, selling its stake for US$1 in 2021—a S$1.9 billion loss that gutted shareholder equity.

2. UK Property Underperformance:
   Poor returns from UK ventures contributed to a 94% drop in net profit in H1 2023, further straining liquidity. These losses highlight a lack of due diligence and strategic foresight, raising doubts about leadership's competence.

The chart would show CDL's stock underperforming peers by a wide margin, underscoring the cost of these missteps.

Debt Risks and Financial Fragility

CDL's debt-to-equity ratio surged to 117% as of 2024, a dangerous level that amplifies financial vulnerability. To address liquidity concerns, the firm sold over S$600 million in assets in 2024. However, these sales were reactive rather than strategic, signaling a scramble to avoid insolvency.

The high gearing ratio leaves CDL exposed to rising interest rates and economic downturns. With shareholder confidence already shattered by governance failures, the company's ability to secure future financing or attract investors is deeply compromised.

The Family Factor: A Threat to Institutional Integrity

The Kwek family's 33.6% stake in CDL ensures its influence over board decisions, but this control has become a liability. The feud between Kwek Leng Beng and Sherman has divided the board into warring factions:
- Sherman's camp: Supported by a majority of directors, advocating modernization and governance changes.
- Patriarch's faction: Includes three directors (Yeo, Ong) aligned with Kwek Leng, resisting leadership shifts.

This internal strife has alienated institutional investors and sparked calls from the Securities Investors Association (Singapore) for a resolution prioritizing shareholder interests over family ties. Until the court rules, CDL remains a proxy war for power, with little focus on value creation.

Investment Thesis: Exit Before Further Destruction

The risks far outweigh any potential rewards for CDL shareholders:
1. Corporate Governance Crisis: Unresolved leadership disputes and regulatory scrutiny could trigger fines or forced governance reforms.
2. Strategic Incompetence: A track record of failed investments signals poor decision-making, unlikely to improve without leadership change.
3. Debt Overhang: The 117% gearing ratio leaves little margin for error in a weakening macroeconomic environment.
4. Peer Underperformance: CDL's share price has lagged its peers by 47.5% over five years, reflecting fundamental mismanagement. Historical data further highlights that CDL's stock tends to underperform following earnings misses, with a maximum single-day decline of -3.46% and a 0% positive return over three days, 16.67% over ten days, and 33.33% over thirty days—underscoring heightened vulnerability to financial disappointments.

Recommendation: Sell CDL holdings immediately. The company's governance flaws and strategic blunders have created a high-risk, low-return profile. Investors should reallocate capital to real estate firms with stable leadership, prudent debt levels, and transparent governance—such as CapitaLand or Ascendas REIT, which have outperformed CDL consistently over the past decade.

Conclusion

City Developments Limited's decline is a cautionary tale of family dynasties clashing with institutional governance. Until the Kwek feud is resolved, strategic errors are addressed, and debt risks are mitigated, CDL's shares remain a high-risk bet. For investors, walking away now is the only rational choice.

This visual would underscore CDL's elevated leverage versus healthier competitors, reinforcing the risk narrative.