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Reuters
6 hours ago
- Business
- Reuters
Breakingviews - Hong Kong is not New World's lender of last resort
HONG KONG, June 19 (Reuters Breakingviews) - A property giant's struggle to secure an $11 billion debt refinancing is keeping regulators and bankers in Hong Kong on edge, for good reason. A high-profile default of New World Development ( opens new tab would inflict a wave of pain on the Asian hub, echoing the crisis China Evergrande's ( opens new tab default precipitated across the border. There are some crucial differences, however. To be sure, the pair are linked and alike in many ways. The property developers' founders were Poker pals, opens new tab. With a liking for high-stakes bets, their companies ended up the most indebted of real estate firms in Hong Kong and mainland China respectively. Deprived of bank financing after Chinese President Xi Jinping launched a deleveraging campaign in 2020, Evergrande has since defaulted on $23 billion worth of offshore debt – the Cheng family which controls New World among the list of creditors, opens new tab – and was ordered into liquidation last year. Its now-ousted chairman Hui Ka-yan is in police custody for suspected financial crimes. Evergrande's problems were the tip of a borrowing iceberg that have engulfed every major developer on the mainland. By contrast, New World is the only large Hong Kong developer experiencing a severe liquidity squeeze despite a 30% drop in residential and retail property prices since 2021. Its debt-fueled expansion, opens new tab under the leadership of Adrian Cheng, the founder's grandson, in a toppish market just before the Covid-19 pandemic, is largely to blame. Despite the blunders, New World can still afford luxuries Evergrande could only dream of: Support from banks. That support is not complete, however. New World needs to win the backing of over 50 of the lenders invited to take part in a HK$87.5 billion refinancing deal by the end of June, Bloomberg reported last week, citing sources. It has 87% support so far, including from HSBC (HSBA.L), opens new tab and Bank of China ( opens new tab, ( opens new tab. Details of the jumbo loan, opens new tab, including tenure and collateralisation, are unclear. With interest rates easing, some banks may be willing to give an important client breathing space and hope for a property market rebound. Yet some may decide to hold out on concern that the current downturn could be structural. New World reported its first loss in two decades last year. The company will be profitable again in 2027, according to analyst forecasts compiled by LSEG, but net income will amount to just 4% of its 2019 level. It will also be hard for Hong Kong's market to rebound without China's economy firing up. Nor is the management team stable; the company is on its second CEO since Adrian Cheng stepped down in September. By the end of 2024, total liabilities stood at $17.4 billion – a fraction of Evergrande's $332 billion as of June 2023. That means even if New World's debt woes worsen, local banks, mostly well-capitalised, can withstand the shock. The city's biggest bank, HSBC, for example, had more than $33 billion in Hong Kong commercial property loans on its books at the end of 2024. Some $3.2 billion of that was already classified as credit impaired as of June last year. CEO Georges Elhedery told, opens new tab shareholders in February that future credit losses on it were unlikely to be big thanks to a high level of collateral, with loan-to-value ratios well above 50%. Yet a big-name default could trigger cascading effects, opens new tab where homebuyers lose confidence, leading to another 7% drop in prices this year, according to S&P Global Ratings. Land sale income often accounts for one-third of Hong Kong's fiscal income. The systematic importance of the real estate sector underscores why some local commentators think the government ought to come to New World's rescue, just as it did with a $28 billion bailout of carrier Cathay Pacific Airways ( opens new tab during the pandemic. Financial Secretary Paul Chan told legislators this month there is no such plan, though he added the Hong Kong Monetary Authority had set up a taskforce with banks to tackle the property sector's credit crunch. New World is also active in the mainland, including the Northern Metropolis, a mega new town at the border of Hong Kong and Shenzhen that is planned to deepen the integration of the two cities. A capital injection from its state-owned business partners is possible, although it will beg the question why a Hong Kong giant is deemed too important to fail while the likes of Evergrande were not. The answer lies in the gap between the two different administrative systems. Beijing is willing to implement radical policy changes to wean China's $18 trillion economy off a heavy dependence on real estate. Hong Kong, often lauded as the world's most expensive city, has leaned on property for growth for decades and official efforts to find alternative engines to spur GDP have not yielded much. That means boom-and-bust cycles come thick and fast in China, so do the rise-and-fall of property tycoons like Hui. Hong Kong's property magnates are in a different class. They have amassed a fortune. Henderson Land Development ( opens new tab, for one, may have made costly expansion plans akin to New World, yet the blue-chip developer's founder, Lee Shau-kee, who passed away in March, made shareholder loans, opens new tab worth nearly $8 billion to stave off a debt crisis at his listed flagship in 2023. The city's senior bankers will know how deep the pockets of their megarich clients run. Hong Kong can weather a default by New World but, before it comes to that, the Cheng family, which owns 45% of the company, could step up as a lender of last resort. That will be a fitting outcome to this tale of two property crises.
South China Morning Post
4 days ago
- Business
- South China Morning Post
Hong Kong wealth legacy academy's new portal connects rich families with charitable work
The Hong Kong Academy for Wealth Legacy (HKAWL), chaired by Adrian Cheng Chi-kong, launched a web portal on Tuesday to connect wealthy families with philanthropic initiatives, giving them access to high-impact projects. The Impact Link Online Portal (iLink) will serve as a repository for philanthropic projects that wealthy families can participate in, as well as an online community where they can connect and learn from one another, said Cheng, a former CEO of Hong Kong property giant New World Development (NWD). 'From our engagements with family office principals, asset owners and inheritors, we've observed a strong demand for guidance on setting up family foundations, identifying impactful projects, scaling philanthropic efforts through collaboration and measuring philanthropic outcomes,' said Cheng. 'Families are also eager to learn from others' experiences about effective practices in philanthropy.' The portal was developed to meet these needs, offering a centralised platform for knowledge sharing, collaboration, as well as empowering families to reach informed and impactful philanthropic endeavours, he added. Adrian Cheng is the chairman of the Hong Kong Academy for Wealth Legacy. Photo: HKGTA Cheng, 45, a scion of one of Hong Kong's wealthiest families – which controls NWD and jewellery retailer Chow Tai Fook Jewellery Group – resigned as CEO of NWD in September. Long regarded as the family's heir apparent, Cheng joined NWD in 2007 at the age of 28 and led the company through an aggressive expansion in mainland China and Hong Kong, including the launch of his signature K11-branded shopping centres.
Bloomberg
13-06-2025
- Business
- Bloomberg
New World's Luxury Ambition Collides With Hong Kong Property Downturn
In a gentrifying neighborhood near a picturesque marina, the ambition of a troubled Hong Kong property developer is colliding with harsh economic realities. Deep Water Pavilia has all the high-end hallmarks of an era when New World Development Co. was pursuing visions of grandeur under its artistic chief executive, Adrian Cheng. But now the project is nearing completion with the company struggling, Cheng in a new role and the city's residential real estate in its fourth year of decline. The sprawling development has become a symbol of both the company's desperate need for cash and of an intensifying price war gripping the market.
Reuters
28-02-2025
- Business
- Reuters
New World Development reports $852 million first-half net loss
HONG KONG, Feb 28 (Reuters) - New World Development ( opens new tab, one of the biggest property developers in Hong Kong, reported an interim net loss of HK$6.63 billion ($852.45 million) on Friday, following a prolonged property downturn and high interest costs. The developer has struggled with a limited cashflow for the last three years and financial markets are nervous any deepening of its debt problems could trigger a crisis reminiscent of the one in mainland China that started in 2021 and led to scores of company defaults. Investors are keen for an update from new CEO Echo Huang on the company's progress in its plans for deleveraging, debt repayment and asset disposal. New World has undergone two CEO changes in two months. Adrian Cheng, the third-generation scion of the founding family, resigned in September, raising concerns over its corporate governance. The net loss for the first half ended in December, which counts only continuing operations, is mainly driven by impairment and fair-value losses. That compares to a HK$502 million net profit a year ago and follows a record HK$11.8 billion net loss for the full 2023/2024 financial year. New World flagged the loss last week. Hong Kong developers enjoyed decades of growth until the property market, a pillar of the economy, was hit by a series of crises, including anti-government protests in 2019, COVID-19 and a slow economic recovery. New World's market value has shrunk to about $1.5 billion from $14 billion in mid-2019. Higher interest rates are also hitting it harder than its peers because it has some of the highest net gearing in the sector, at 85% at end-June, following its rapid expansion in both Hong Kong and mainland China before the pandemic. The developer had a total of HK$151.6 billion of loans and bonds outstanding as of end-June, with HK$41.6 billion of the debt due by June this year, while its cash level was HK$28 billion. It also had HK$36.3 billion of perpetual bonds, which typically pay more expensive rates. The perpetual bonds are trading at between 28 to 56 cents on the dollar, reflecting an imminent default or a bond restructuring. Its 6.25% perpetual bond has a $40.6 million coupon payment due on March 7, and the $345 million, 6.15% notes will have their coupon reset to around 10.5% if New World does not redeem the securities by June 16 this year. ($1 = 7.7776 Hong Kong dollars)
Reuters
28-02-2025
- Business
- Reuters
New World Development's debt repayment in focus amid $875 million expected H1 loss
HONG KONG, Feb 28 (Reuters) - Hong Kong's New World Development ( opens new tab, which has been battling liquidity stress for the past three years, is set to report an interim net loss of up to $875 million on Friday, hurt by a prolonged property downturn and high interest costs. Investors are watching to see whether the deepening debt woes of New World, one of the biggest property developers in Hong Kong, could spiral into a sector crisis reminiscent of the one in mainland China that started in 2021 and led to scores of company defaults there. They also want an update from new CEO Echo Huang on the firm's progress in its plans for deleveraging, debt repayment and asset disposal. New World has undergone two CEO changes in two months, with Adrian Cheng, the third-generation scion of the firm's founding family, stepping down in September, raising concerns over its corporate governance. The estimated net loss for the first half ended in December, which counts only continuing operations, was flagged by the firm last week and is driven by impairment and fair-value losses. That compares to a HK$502 million ($64.57 million) net profit a year ago and follows a record HK$11.8 billion net loss for the full 2023/2024 financial year. Hong Kong developers enjoyed decades of growth until the property market, a key pillar of the economy, stumbled from one crisis to another, including anti-government protests in 2019, COVID-19 and a slow economic recovery. New World's market value has shrivelled to about $1.5 billion now from $14 billion in mid-2019. It is also suffering from a hike in interest rates more than its peers because it has among the highest net gearing in the sector, at 85%, due to its rapid expansion in both Hong Kong and mainland China before the pandemic. The developer had a total of HK$151.6 billion of loans and bonds outstanding as of end-June, with HK$41.6 billion of the debt due by June this year, while its cash level was only at HK$28 billion. It also had HK$36.3 billion of perpetual bonds, which typically pay more expensive rates. Its 6.25% perpetual bond has a $40.6 million coupon payment due on March 7, and the $345 million, 6.15% notes will have their coupon reset to around 10.5% if New World does not redeem the securities by June 16 this year.
