This led to the cancellation of the company's FY2024 results briefing and a trading halt.

For City Developments Limited C09, Feb 26 was supposed to be an eventful day, as the property and hospitality giant was scheduled to announce its FY2024 results. In a by now familiar plot, the market was expecting a softer set of numbers no thanks to persistently high interest costs which affected all property players.

At 8.02 am, just half an hour after the FY2024 results were released on the SGX website, CDL called for a trading halt, which is clearly unusual as the point of releasing the results way before market trading begins is so investors can decide how to react. At 8.34am, CDL issued a terse announcement cancelling the briefing that was scheduled to start at 10am - catching its own employees setting up the briefing venue at M Hotel by surprise.

The subsequent statement erupted Corporate Singapore. Kwek Leng Beng, CDL’s executive chairman Kwek Leng Beng says he is taking his son, group CEO Sherman Kwek and group of other directors to court, for trying to “circumvent” good governance and for an “attempted coup”.

According to Leng Beng in his statement, Sherman Kwek, Philip Lee, Wong Ai Ai, with the support of other directors Desbaillets Daniel Marie Ghislain and Carolina Chan, have sought to consolidate control of the board. Leng Beng, meanwhile, is backed by three other directors Philip Yeo, Colin Ong and Chong Yoon Chou. 

According to Leng Beng’s statement, two additional independent directors – Wong Su Yen and Young Jennifer Duong – were nominated hastily without alerting the NC chairman Chong, a former fund manager. 

“Contrary to established corporate governance principles, the SGX Listing Rules and the Code of Corporate Governance, they bypassed the Nomination Committee (NC) on two occasions to change the composition of the board and hastily followed up by making significant changes to board committees and the governance of the group,” says Leng Beng.

By taking Sherman and his faction to court, Leng Beng, along with board members had issued court papers on Feb 25, want to “set things right” and “restore corporate integrity.”

Leng Beng says at the appropriate time, he wants to “change the CEO” and “explore all legal options available to us to vigorously defend and protect the interests of CDL and its shareholders.”

In the court papers, the applicants want the court to restrain Wong Su Yen and Young Jennifer Duong from exercising the powers of a director. The three of them, along with Wong Ai Ai, Sherman, Chan and Ghislain are also restrained from doing any acts pursuant to or in furtherance of the Directors' Resolution in Writing (DRIW) dated Feb 21.

Lee, Wong Ai Ai, Sherman, Chan and Ghislain are also directed to take necessary steps to reverse the effects of the resolutions purportedly passed under the Feb 21 DRIW, including but not limited to voting in favour of any board resolution to be passed. 

All seven parties involved are also directed to pay for damages incurred.

Blame game

According to the statement by Leng Beng, this is not the first time Sherman’s decisions have put CDL in a “precarious position”. 

For one, Sherman was responsible for the botched acquisition of China developer Sincere Property which led to a massive $1.9 billion loss in FY2020, says Leng Beng.

Differences over the Sincere deal led to the abrupt resignation of Kwek Leng Peck from the CDL board back in Oct 2020. Leng Peck, who served some three decades on CDL’s board, is Leng Beng’s cousin and Sherman’s uncle. 

Leng Beng also alleges that Sherman made poor investment decisions in the UK property market that resulted in significant financial loss in 1HFY2023.

CDL’s share price has consistently underperformed peers since Sherman assumed leadership in 2018, which Leng Beng attributes to eroding shareholder confidence and shareholder concerns over strategic mishaps. 

“As a father, firing my son was certainly not an easy decision,” says Leng Beng.

“I accept that business decisions are difficult and young people may make business mistakes in their careers and that is understandable, but circumventing corporate governance laws is a red line,” he adds.

Leng Beng claims that this “scheme” has been deliberately designed to consolidate unchecked authority over CDL by dismantling the existing Nominating Committee (NC) and replacing it with a Nominating and Remuneration Committee (NRC). 

This restructuring is seen as a calculated effort to sideline independent oversight and give the majority bloc unrestricted control over CDL’s leadership and decision-making.

In the event the majority bloc is successful, they will be able to elect key management personnel (KMP) at their discretion, bypassing independent oversight; appoint and remove board members arbitrarily; and strip the chairman of meaningful authority, keeping him away from the nomination process of directors and KMPs.

Leadership tussle 

Leng Beng Kwek iterates that internal measures are already in place to ensure business stability in the absence of a CEO. 

In place of Sherman, Kwek Eik Sheng, the incumbent CDL COO who is nephew of Leng Beng and cousin of Sherman, will serve as interim CEO.

CDL, addressing the trading halt, says that Sherman remains as the group’s CEO and that CDL’s business operations remain fully functional and unaffected.

In his response, Sherman says it is “incredibly disappointing that our chairman and a minority of the CDL board have decided to take these extreme actions regarding this disagreement around the size and make-up of the CDL board.”

He added that this issue has "never been about ousting our esteemed chairman".

"These steps to strengthen our board have purely been to ensure CDL has the highest standards of governance to which it has become known, and our collective decision-making as a board is as robust as possible. 

“As the matter is now before the courts for adjudication, we will not comment on the merits of the case and will make further announcements if there are any material developments,” he adds. 

When asked, many analysts who have an active coverage on CDL declined to comment on this issue. 

In his Feb 26 note, Brandon Lee of Citi Research figures that the potential impact of this episode is hard to quantify. "We think uncertainty regarding the board and company leadership, as well as lengthiness of a potential court case, could be a share price overhang in the short term."

Lee, referring Leng Peck's resignation back in Oct 2020, recalls that CDL's share price dropped by a fifth over the following fortnight.

"Nonetheless, we believe CDL is very under-owned by investors, hence, any positive resolution would be a major share price catalyst in the longer term," says Lee, premising his view on how CDL now trades at less than a third of its book value. 

CDL shares last traded at $5.12, down 14.38% in the past year.