Hong Kong bankers on edge over US$11 billion New World refinancing
[HONG KONG] Hong Kong bankers have become fixated on an US$11 billion loan deal with unusually high stakes for the financial hub.
New World Development, an embattled property developer controlled by one of Hong Kong's richest families, is aiming to complete one of the city's largest-ever corporate refinancing deals with more than 50 banks by the end of June after pushing back an initial deadline for this month. As at last week, about 10 banks have agreed to terms while the rest are still talking.
Failure to reach a deal could lead to demands for immediate repayment. The repercussions would threaten both New World and many of the banks which are already suffering from a sharp rise in non-performing loans from commercial real estate. The stakes are so high that in many cases, the banks' chief risk officers have stepped in, sources familiar with the matter said. Even chief executive officers of banks are closely monitoring the situation with frequent updates, the sources added, asking not to be identified as the matter is private.
'A New World Development failure wouldn't break the system, but that destabilisation could be contagious,' said Brock Silvers, managing director at private equity firm Kaiyuan Capital. 'A 'delay & pray' strategy would buy time while doing little to alleviate underlying risk to the company or Hong Kong's broader financial system.'
New World aims to secure HK$87.5 billion (S$14.5 billion) in refinancing. It has commitments exceeding HK$20 billion from Bank of China, HSBC Holdings and Standard Chartered, local lenders Bank of East Asia, Fubon Bank (Hong Kong), Hang Seng Bank, and French lender Credit Industriel et Commercial along with several other financial institutions.
New World Development did not respond to a request for comment.
A NEWSLETTER FOR YOU
Tuesday, 12 pm Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
Sign Up
Sign Up
The other banks are in the process of securing internal credit approvals. A deal of this magnitude can take time as credit committees scrutinise every detail, raising numerous questions to evaluate the risks involved.
Some banks are waiting for lenders with greater exposure to sign on before they can secure their own internal approvals, said the sources. A couple of other top Chinese, Japanese and Singaporean banks are in the final stages of approving the loan, according to other sources familiar with the matter.
'If one or two lenders in the syndicate are unwilling to commit, will the others in the syndicate be willing to take up the rest of the refinancing? If yes, the impact to the banking sector would be limited,' said Cusson Leung, chief investment officer for KGI Asia. 'If a majority of the lenders in the syndicate are unwilling to commit, it is much more destabilising.'
New World is controlled by the family of Henry Cheng, an avid player of a Chinese poker game called Big Two, whose fortune is estimated at US$22.9 billion. PHOTO: BLOOMBERG
New World is controlled by the family of Henry Cheng, an avid player of a Chinese poker game called Big Two, whose fortune is estimated at US$22.9 billion. The developer has built many of Hong Kong's landmarks over the past several decades. Its trophy properties include the commercial complex located at the core area of Tsim Sha Tsui waterfront in Kowloon district and the 11 Skies commercial complex project next to the Hong Kong International Airport.
However, the developer has been mired in a two-year crisis of confidence amid mounting liquidity pressure. Home values in Hong Kong have fallen 28 per cent from an all-time high in 2021 and have been hovering at the lowest levels since 2016 in recent months. Residential property development in Hong Kong and mainland China account for about half of the company's revenue.
Meanwhile, the city's office vacancy rate was near a historical high of 13.7 per cent in April, while office rents saw the 36th consecutive month of declines since May 2022, according to real estate services firm JLL. New World's net debt rose to 96 per cent of shareholders' equity as at the end of 2024, according to BI research, making it one of the most leveraged Hong Kong developers.
Investors are increasingly sceptical of the firm's ability to manage the debt burden, after it reported its first loss in 20 years for the financial year ended last June. Adding to New World's woes, it changed its chief executive officer twice in two months, including the surprise sidelining of Adrian Cheng, Henry Cheng's eldest son.
New World has multiple bond coupon payments due in June. The builder had total liabilities of HK$210.9 billion at the end of December 2024 and in June it has at least US$116.6 million of coupon payments due, including on four perpetual notes. The company has pledged around 40 properties as collateral, including its crown jewel, Victoria Dockside, to get refinancing.
The developer spooked creditors about possible liquidity strains when it opted not to call a US$345 million 6.15 per cent perpetual bond before interest costs jump to over 10 per cent. The price of this perpetual bond has plunged 28 per cent to about 56 cents so far this month, the steepest monthly decline since January, according to data compiled by Bloomberg.
'The outcome of the loan refinancing is the near-term catalyst for the bonds, as failure to refinance the bank loans now could lead to liquidity issues down the road,' said Leonard Law, a Singapore-based senior credit analyst at Lucror Analytics.
The downturn in property has saddled banks with non-performing loans. The Bank of China's Hong Kong unit, Bank of East Asia (BEA), Hang Seng Bank and HSBC are among lenders with the biggest exposure to the city's commercial real estate sector. Hang Seng classified about 15.1 per cent of its HK$130.5 billion Hong Kong commercial property loans as credit-impaired at the end of last year, compared with less than 1 per cent in 2023.
The tallies for HSBC and the Bank of China's Hong Kong unit are about 13.7 per cent and 1.7 per cent, respectively, according to the banks' disclosures. BEA has an impaired loan ratio of 6 per cent for its Hong Kong commercial real estate exposure, according to a Bloomberg Intelligence report, citing the bank's management. The banks did not respond to requests for comment.
Still, most observers expect the banks to ultimately reach a deal with New World. About 20 per cent of Hong Kong's licensed bank loans were exposed to the property sector as at March, according to Jeff Zhang, a property analyst at Morningstar. The concentration of risk means if lenders play hardball, it could end up backfiring. Failure to reach terms would damage everyone.
'Banks are generally better off to commit than to demand immediate repayment as NWD will not likely be able to repay all loans in the full amount,' he said. BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
9 hours ago
- Straits Times
Ukraine asks allies to allocate 0.25% of GDP to boost its weapons production
Ukrainian servicemen preparing to fire a howitzer towards Russian troops, at a front line position in Ukraine's Zaporizhzhia region, on June 16. PHOTO: REUTERS Ukraine asks allies to allocate 0.25% of GDP to boost its weapons production KYIV - President Volodymyr Zelensky has called on Ukraine's Western partners to allocate 0.25 per cent of their GDP to helping Kyiv ramp up weapons production and said the country plans to sign agreements this summer to start exporting weapon production technologies. In remarks released for publication by his office on June 21, Mr Zelensky said Ukraine was in talks with Denmark, Norway, Germany, Canada, the United Kingdom, and Lithuania to launch joint weapon production. 'Ukraine is part of Europe's security and we want 0.25 per cent of the GDP of a particular partner country to be allocated for our defence industry and domestic production,' Mr Zelensky said. As the war with a bigger and better-equipped Russia has intensified in recent weeks, Ukraine's need for new weapons and ammunition is constantly growing. This year, Kyiv had secured US$43 billion (S$55 billion) to finance its domestic weapon production, Mr Zelensky said. Member nations of the Nato military alliance are expected to meet next week in The Hague, to discuss higher defence spending. Nato Secretary-General Mark Rutte has proposed that countries should each agree to spend 5 per cent of their GDP on defence and security measures. Mr Zelensky said he was likely to visit the Nato summit, adding that several meetings with Western leaders had been set up on the sidelines. He also said that he hoped to meet US President Donald Trump. Last week, Mr Zelensky attended the Group of Seven summit in Canada as he sought to discuss stronger sanctions against Russia and more military support for Ukraine with Mr Trump there. But he failed to meet the US President as Mr Trump left a day early for Washington to address the Israel-Iran conflict. Ukraine currently covers about 40 per cent of its defence needs with domestic production, and the government is constantly looking for ways to increase production further. Kyiv plans to launch joint weapon production outside of the country and will start exporting some of its military production technologies, Mr Zelensky said. 'We have launched a programme 'Build with Ukraine', and in the summer we will sign relevant agreements to start exporting our technologies abroad in the format of opening production lines in European countries,' Mr Zelensky said. The discussions focused on producing different types of drones, missiles, and potentially artillery, he said. REUTERS More on this Topic Zelenskiy says Ukraine developing interceptor drones to counter Russian attacks Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
9 hours ago
- Straits Times
European proposals in Geneva unrealistic: Senior Iranian official
FILE PHOTO: The InterContinental hotel is pictured on a day of nuclear talks in Geneva, Switzerland, June 20, 2025. REUTERS/Denis Balibouse/File Photo ISTANBUL - A senior Iranian official said on Saturday that proposals put forward by European powers at talks in Geneva about his country's nuclear programme were "unrealistic", suggesting that if they stuck to them it would be difficult to reach an accord. There were few signs of progress on Friday after the foreign ministers of Britain, France and Germany, known as the E3, plus the EU met their Iranian counterpart in a bid to prevent the conflict between Israel and Iran from escalating. "The discussions and proposals made by the Europeans in Geneva were unrealistic. Insisting on these positions will not bring Iran and Europe closer to an agreement," the senior official told Reuters, while speaking on condition of anonymity. "In any case, Iran will review the European proposals in Tehran and present its responses in the next meeting,' the official said. Both sides signalled on Friday their readiness to keep talking, although no new date was set. European diplomats said Friday's talks had been aimed at testing Tehran's willingness to negotiate a new nuclear deal despite there being no obvious prospect of Israel halting its attacks soon. While neither side disclosed details of what was put forward, two European diplomats said the E3 did not believe that Israel would accept a ceasefire in the near term and that it would be difficult for Iran and the U.S. to resume negotiations. They said the idea was to begin a parallel negotiating track, initially without the U.S., on a new deal that would involve tougher inspections, including potentially of Iran's ballistic missile programme, while allowing Tehran some notional uranium enrichment capacity. French President Emmanuel Macron on Saturday spoke with his Iranian counterpart and said the two sides had agreed to accelerate negotiations, although he insisted it was up to Iran "to provide every assurance that its intentions are peaceful." Despite some European ministers suggesting on Friday that Iran was more ready to talk about issues beyond the nuclear programme, the senior official dismissed the possibility of negotiating its defensive capabilities, including its missile programme, and repeated that the idea of zero enrichment of uranium was a dead end. "Iran welcomes diplomacy but not under the shadow of war," the official said. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
9 hours ago
- Straits Times
Senior Iranian official: European proposals in Geneva unrealistic
FILE PHOTO: The InterContinental hotel is pictured on a day of nuclear talks in Geneva, Switzerland, June 20, 2025. REUTERS/Denis Balibouse/File Photo ISTANBUL - A senior Iranian official said on Saturday that proposals put forward by European powers at talks in Geneva about his country's nuclear programme were "unrealistic", suggesting that if they stuck to them it would be difficult to reach an accord. There were few signs of progress on Friday after the foreign ministers of Britain, France and Germany, known as the E3, plus the EU met their Iranian counterpart in a bid to prevent the conflict between Israel and Iran from escalating. "The discussions and proposals made by the Europeans in Geneva were unrealistic. Insisting on these positions will not bring Iran and Europe closer to an agreement," the senior official told Reuters, while speaking on condition of anonymity. "In any case, Iran will review the European proposals in Tehran and present its responses in the next meeting,' the official said. Both sides signalled on Friday their readiness to keep talking, although no new date was set. European diplomats said Friday's talks had been aimed at testing Tehran's willingness to negotiate a new nuclear deal despite there being no obvious prospect of Israel halting its attacks soon. While neither side disclosed details of what was put forward, two European diplomats said the E3 did not believe that Israel would accept a ceasefire in the near term and that it would be difficult for Iran and the U.S. to resume negotiations. They said the idea was to begin a parallel negotiating track, initially without the U.S., on a new deal that would involve tougher inspections, including potentially of Iran's ballistic missile programme, while allowing Tehran some notional uranium enrichment capacity. French President Emmanuel Macron on Saturday spoke with his Iranian counterpart and said the two sides had agreed to accelerate negotiations, although he insisted it was up to Iran "to provide every assurance that its intentions are peaceful." Despite some European ministers suggesting on Friday that Iran was more ready to talk about issues beyond the nuclear programme, the senior official dismissed the possibility of negotiating its defensive capabilities, including its missile programme, and repeated that the idea of zero enrichment of uranium was a dead end. "Iran welcomes diplomacy but not under the shadow of war," the official said. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
