Family disputes rock $18B City Developments empire of Singapore’s 4th richest man Kwek Leng Beng

Leng Beng on Tuesday filed a lawsuit against his son and CEO of the firm, Sherman, along with several executives.

The 84-year-old chairman alleged that Sherman and his collaborators were attempting to set up "a coup" as they sought to take over the company, which is part of an empire that Leng Beng and his father spent many years to build.

"Generational succession is always tricky, but even more so if the business experiences headwinds and the previous generation retains a position of power," said Marleen Dieleman, professor of family business at IMD Business School in Singapore. "The events at City Developments today point to chaos," she said, as quoted by Bloomberg.

Kwek Leng Beng, Executive Chairman of City Developments Limited at the Las Vegas Sands Corp and City Developments Limited Media Briefing on 7 April 2006. Photo by The Business Times/SPH Media via AFP

Empire built in decades

Leng Beng and his family share a combined net worth of US11.5 billion, making him the fourth richest billionaire in Singapore, according to a ranking list by Forbes last September.

City Developments, among Singapore’s largest property developers, has a market capitalization of S$4.6 billion and properties in nearly 30 countries.

City Developments, which now operates hotels, office buildings and residential properties across 29 countries, was a loss-making company before it was acquired by Leng Beng, along with his father and brother.

Kwek expanded the business foundation laid by his father Hong Png, a Chinese immigrant who co-founded Malaysia-based trading firm Hong Leong Group in 1963.

Hong Png later expanded his company into many sectors including hotels, real estate, and manufacturing. The group, which owns St. Regis Singapore and JW Marriott Hong Kong, is now the largest hotel owner in Singapore and employs around 20,000 staff. Its assets are estimated at $30 billion.

The Kwek family, which controls around 49% of City Developments, continued to seeks opportunities to accumulate wealth with the appointment of Sherman as CEO in 2018.

Sherman, who graduated from Boston University in the U.S., was in charge of expanding City Developments into the China market with a billion-dollar investment into Sincere Property Group in 2019.

Expectations, however, turned sour as China’s property crisis resulted in a SGD1.9 billion (US$1.4 billion) loss for City Developments in 2020.

The performance of the company continued to weaken as lockdowns triggered by the Covid-19 pandemic forced hotels to suspend business.

"Poor investment decisions in the UK property market" made by Sherman caused significant financial losses, Leng Beng said in a four-page statement to the media, and blamed his son for the underperformance of City Developments shares.

Leng Beng therefore sought to remove Sherman from the CEO post earlier this month due to his "serious lapses of corporate governance". His decision to sue Sherman earlier this week demonstrated his determination to take back control over the company.

Sherman Kwek. Photo courtesy of City Developments Limited

The chairman explained that Sherman and some directors had attempted to add two new directors to the board while neglecting typical nomination procedures.

The new directors, Jennifer Duong Young and Wong Su-Yen, had committed to not making any decision until the further notice of the court.

Leng Beng believes that the move by Sherman sought to threaten the safety of the empire he has built.

"The reckless actions of a faction seeking to consolidate unchecked control not only undermine the foundations of City Developments’ governance but also put at risk the very legacy we have built over the decades."

Sherman, however, assured that everything he did was for the good of the company.

He claimed that he and a majority of the board were "disappointed" in his father’s decision to bring the dispute to court.

Extreme actions were taken by his father and a minority of the board over disagreement around its size and make-up, he said, adding that his goal had always been to improve governance.

Governance cracks

Observers believe that while the family dispute at one of the largest companies in Singapore may take a long time to end, City Developments operations will be more or less affected by uncertainties in its governance.

Mak Yuen Teen, corporate governance advocate and accounting professor at the National University of Singapore Business School, said that corporate governance plays a key role in ensuring the stability of a family business.

While City Developments is considered a beacon of sustainability, its failure in China, and the current boardroom turmoil, are indicating governance cracks, he said, as cited by The Business Times.

Analysts at DBS Group Research expect short-term volatility in City Developments share price due to management uncertainties.

City Developments, while assuring that all operations remain normal and Sherman is still its CEO, has halted share trading and called off a press briefing amid the power struggle.

Its recently-released annual results missed estimates, while its market value has plunged to $3.4 billion, or a third of its 2007 peak.

But DBS Group Research analysts added that the company’s core business, including its hotels and property investment, will remain largely intact, as they are real estate generating cash flow.

Ken Foong, analyst at Bloomberg Intelligence, said that while a leadership feud can cause immediate issues, the company’s long-term growth will still be supported by its high-profile status and valuable assets.

"The markets are very sensitive to family feuds," said Mandy Tham, academic director of master of science in wealth management at Singapore Management University. "Family feuds are unlikely to be resolved speedily, and some could not be resolved at all."