CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 174 175 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 10 FINANCIAL ASSETS (CONT’D) (b) Included in the unquoted debt investments mandatorily at FVTPL were the following: (i) $142,486,000 (2020: $146,812,000) relating to the Group’s investment in a note due 2023 issued by Summervale Properties Pte. Ltd. (Summervale) for Nouvel 18, a 156-unit luxury freehold residential development on Anderson Road, Singapore. In October 2016, the Group established its third Profit Participation Securities (PPS) by entering into an investment agreement, and an asset management and marketing agreement with an unrelated party, Green 18 Pte. Ltd. (Green 18), to exit its entire interest in Summervale. As part of the investment agreement, the Group subscribed for a note of $140 million issued by Summervale. According to the asset management and marketing agreement, Summervale appointed Trentwell Management Pte. Ltd. (Trentwell), a wholly-owned subsidiary of the Group, as the asset manager and marketing agent of Summervale to manage and lease out Nouvel 18, as well as to market and divest units in Nouvel 18 for a period of five years (with an option to extend to seven years). The option for extension of the duration of the asset management and marketing agreement for a further 2-year period has been exercised with effect from 20 October 2021. (ii) $32,923,000 (2020: $34,390,000) relating to the Group’s investment in property-linked notes issued for the development of a luxury retirement village in New South Wales, Australia. (iii) $10,724,000 as at 31 December 2020 relating to a convertible loan granted to a joint venture. The convertible loan was repaid during 2021. (c) Unquoted debt investment at amortised cost with gross carrying amount of $311,512,000 (US$230 million) (2020: $305,394,000 (US$230 million)) relates to the Group’s investment in a US$ bond issued by Sincere Property Group. The bond bore interest at 10% (2020: 10%) per annum up till the effective date of commencement of Sincere Property’s bankruptcy reorganisation on 14 October 2021. The bond which has amaturity date of 27 June 2022, may be redeemed by the holder on or before 27 June 2021. During 2021, the Group exercised its put option and issued a put notice to the issuer for full repayment. As at 31 December 2021, the bond remained unpaid. An impairment loss of $288,000,000 was recognised on the bond during 2020. There is no additional impairment recognised on the bond during the year. The Group has no collateral in respect of this investment. Themovement in the allowance for impairment for debt investments at amortised cost during the year was as follows: Lifetime ECL credit-impaired Lifetime ECL credit-impaired 2021 2020 $’000 $’000 Balance as at 1 January 288,000 – Impairment loss recognised – 288,000 Translation differences 5,769 – Balance as at 31 December 293,769 288,000 The impairment loss recognised in 2020 was included in the consolidated statement of profit or loss. 10 FINANCIAL ASSETS (CONT’D) The Group undertook an impairment assessment of the investment in the bond. 2021 Having considered that Sincere Property has entered into bankruptcy reorganisation and its credit rating and domestic corporate bonds were downgraded by a local credit rating agency during 2021 (see note 9), the Group assessed that the investment in the bond continued to be credit-impaired. At 31 December 2021, the Group assessed the lifetime ECL to be recognised, taking into account the latest developments of Sincere Property Group based on publicly available information as described in note 9, prevailing market conditions and price trends of corporate bonds issued by other China real estate developers with credit ratings similar to that of Sincere Property Group and face similar debt and liquidity challenges as those faced by Sincere Property Group, following regulatory tightening and systematic changes on financing imposed on China’s real estate sector. The key parameter applied in estimating the ECL to be recognised include assuming a LGD of approximately 90% which was based on the range of decline in trading prices of bonds issued by other China real estate developers with credit ratings similar to that of Sincere Property Group and faced similar debt and liquidity challenges as those faced by Sincere Property Group. Based on the assessment undertaken, the Group assessed that no additional impairment is required on the investment in the bond. At 31 December 2021, the carrying value of the bond was $17.7 million (net of impairment loss). As the bankruptcy reorganisation for Sincere Property Group is ongoing, its outcome is uncertain and evolving. Changes to circumstances and estimates may impact the ECL recognised on the investment in the bond. The ECL on the investment in the bond is also sensitive to the assumptions used. A decrease in LGD in isolation would result in a higher recoverable amount. An increase in LGD in isolation would result in a lower recoverable amount. 2020 The Group assessed that the investment in the bond was 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 the reporting date, 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) and the debt profile of the Sincere Property Group. The key parameters applied in estimating the ECL to be 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 were based on the market data available. Based on the assessment undertaken, the Group recognised an impairment loss of $288 million on the investment in the bond. At 31 December 2020, the carrying value of the bond was $17.4 million (net of impairment loss).
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