City Developments Limited (CDL) is set to divest at least $600 million in assets in FY2025 to tackle its high net gearing, which stood at 117% as of FY2024. This significant move comes after the company was unable to meet its initial $1 billion divestment target in 2024. By divesting these assets, CDL aims to address its financial leverage and improve its capital structure, aligning with its strategic goal of enhancing shareholder value.
You might wonder why such a high net gearing ratio matters. A high net gearing ratio indicates a company’s reliance on debt to finance its operations and growth. In CDL’s case, it showcases the urgency to streamline its asset portfolio. The divestment plan for FY2025 is focused on selling unproductive or non-core assets. This approach allows CDL to optimize its resources and concentrate on more profitable ventures that can drive long-term growth.
CEO Sherman Kwek has emphasized that successful divestments depend significantly on market conditions and strategic decisions. He advocates for a disciplined approach to asset management. This means that each divestment decision will be evaluated carefully, ensuring that it aligns with the overall strategy and market dynamics.
You can expect that CDL won’t rush into divesting assets; they’ll be methodical, weighing the pros and cons of each sale.
Anticipated divestments in the coming fiscal year are expected to reduce CDL’s gearing levels significantly. A successful sale could lead to a decrease of approximately 6.5 percentage points in its gearing ratio. This is no small feat and highlights the potential impact of strategic asset management on the company’s financial health.
By reducing its gearing, CDL can improve its creditworthiness, making it easier to secure financing for future projects and acquisitions.
The emphasis on balancing acquisitions with necessary divestments reflects a proactive approach to asset management. With shareholder feedback calling for a more aggressive divestment strategy, CDL is responding to concerns about its financial leverage.
You’ll see that they’re committed to creating a more productive asset portfolio, which not only ensures operational efficiency but also aligns with the expectations of their investors.
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News Source: Edgeprop
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