CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 170 171 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 9 INVESTMENTS IN AND BALANCES WITH JOINT VENTURES (CONT’D) (iii) Impairment of amounts owing by HCP Group (cont’d) 2021 (cont’d) As the bankruptcy reorganisation for Sincere Property is ongoing, its outcome is uncertain and evolving. Changes to circumstances and estimates may impact the ECL on the amounts owing by HCP Group recognised. The ECL on the amounts owing by HCP Group is also sensitive to the assumptions used. A decrease in the LGD in isolation would result in a higher recoverable amount. An increase in the LGD in isolation would result in a lower recoverable amount. 2020 As at 31 December 2020, the Group had gross amounts owing by HCP Group of $683.6 million and amounts owing to HCP Group of $264.3 million. The Group undertook an impairment assessment of the amounts owing from HCP Group. The Group assessed that the amounts owing by HCP Group were credit-impaired, having considered past repayment trends, the debt maturity profile of Sincere Property Group, the default risk on the amounts owing by Sincere Property Group and the liquidity challenges faced by Sincere Property Group. At 31 December 2020, the Group determined the lifetime ECL to be recognised, taking into account the adjusted financial position of Sincere Property Group (taking into account the estimated recoverable amounts of the properties held by Sincere Property Group and its associates and joint ventures, and potential additional costs to be incurred on borrowings of Sincere Property Group), the debt profile of Sincere Property Group, the value of collateral that the Group held and certain amounts owing by the Group to HCP Group. The key parameters applied in estimating the ECL recognised included assuming a discount of up to 50% on the properties held by Sincere Property Group and the carrying values of investments in associates and joint ventures and additional costs including potential penalty interest of approximately 30% on borrowings. The discount assumptions used to estimate the difference between the fair value of the underlying properties and the expected sales price under a forced sale scenario are based on market data available. The Group also considered the value of the collateral held, which related to shares in a property-owing entity which had been pledged by HCP Group to the Group, based on the recently transacted price of the shares. Based on the assessment undertaken, the Group recognised an impairment loss of $323.9 million on the amounts owing by HCP Group. At 31 December 2020, the Group had amounts owing by HCP Group of $$359.7 million (net of impairment loss recognised) and amounts owing to HCP Group of $264.3 million. Changes to circumstances and estimates may impact the amount of expected credit losses recognised on the amounts owing by HCP Group. The expected credit losses on the amounts owing by HCP Group can be sensitive to the assumptions used. An increase in the discount adjustment on the properties held by the Group and the carrying values of investments in associates and joint ventures and additional costs including potential penalty interest on borrowings in isolation would result in a lower recoverable amount. A lower discount adjustment on the properties held by HCP Group and the carrying values of investments in associate and joint ventures and lower additional costs including potential penalty interest on borrowings in isolation would result in a higher recoverable amount. 9 INVESTMENTS IN AND BALANCES WITH JOINT VENTURES (CONT’D) (iv) Financial information of HCP Group Group 2020 $’000 Group’s interest in net assets of investee at beginning of the year: – Investment during the year 882,141 Share of after-tax loss – share of total comprehensive income (75,770) – impairment of goodwill (806,371) (882,141) Carrying amount of interest in investee at end of the year – 2021 As the Group’s investment in HCP was fully impaired as at 31 December 2020, the Group had discontinued equity accounting for the results of HCP Group in 2020. The investment in HCP was disposed of in September 2021. 2020 In 2020, the challenging macro-economic environment posed by the COVID-19 pandemic, the credit tightening measures imposed on China’s real estate sector and the ongoing uncertainties had disrupted and negatively impacted HCP Group’s operations and performance. Furthermore, weakmarket conditions had derailed the intended divestment plan for some of HCP Group’s properties to reduce its debt, exacerbating the liquidity challenges that it faces. Subsequent to 31 December 2020, the credit ratings of certain of HCP Group’s bonds were downgraded and the HCP Group did not repay the principal amounts of certain bonds on their maturities. Arising from these key events and the evolving developments within the HCP Group up to the date of the Group’s issuance of the financial statements for the financial year ended 31 December 2020, management considered that the financial information of HCP Group as at 31 December 2020, prepared based on information then available, did not faithfully represent HCP Group’s financial position and would not be relevant to users of these financial statements. The main business activities of HCP Group relate to the real estate business derived primarily from Sincere Property Group, which is an issuer of several domestic corporate bonds listed on the Shanghai Stock Exchange. As long as the listed bonds of Sincere Property Group remained outstanding, Sincere Property Group was required to abide by the regulations of China Securities Regulatory Commission (CSRC). Under the regulations of CSRC, any material information in relation to Sincere Property Group needs to be announced by Sincere Property Group in China no later than the announcement of the same elsewhere in the world, failing which Sincere Property Group and its controlling equity holder(s) could be liable under PRC laws. Sincere Property Group, which was required to announce its annual financial statements within 4 months from each financial year end was expected to announce its financial results for year ended 31 December 2020 in late April 2021. Accordingly, before Sincere Property Group announced its 2020 financial information in China, the Group was unable to disclose any financial information of HCP Group in its financial statements for the year ended 31 December 2020. As a result of the above and the uncertainties surrounding the outcome of the matters highlighted, the summarised financial information of HCP Group as at 31 December 2020 and the Group’s unrecognised share of losses, commitments and contingent liabilities in relation to the HCP Group were not presented in the Group’s financial statements for the year ended 31 December 2020.
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