Unlock the Editor’s Digest totally free
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Shares of New World Improvement, the closely indebted Hong Kong property group, jumped as traders welcomed the tip of its refinancing talks with banks and the resignation of the founder’s grandson from his remaining board roles.
Shares rose as a lot as 11 per cent on Wednesday to above HK$6 after the corporate introduced on Monday night it had secured assist from banks to refinance loans of HK$88bn (US$11bn) following marathon negotiations. Hong Kong’s markets had been closed on Tuesday for a public vacation.
The refinancing talks had been seen as essential due to New World’s dimension — with property totalling HK$427.6bn — and the publicity for main lenders. Financial institution loans to the corporate account for 7 per cent of all business actual property loans in Hong Kong, in line with Barclays analysts.
“The market is pricing within the completion of the New World Improvement financing deal and looking out on the [potential for] one other new mortgage,” mentioned Zerlina Zeng, head of Asia technique at CreditSights, the credit score analysis unit of Fitch Options, who added that recent funds may enable the corporate to supply higher phrases to bondholders within the occasion of additional restructuring.
New World, certainly one of Hong Kong’s 4 largest property builders, has been hit by a market downturn following a interval of debt-fuelled growth, as elevated rates of interest and an financial slowdown in mainland China have deterred actual property funding.
The inventory worth is a fifth of what it was in 2020, when the New World founder’s grandson, Adrian Cheng, took over as chief government, and its market capitalisation stands at HK$16bn, in contrast with web debt of HK$124.6bn on the finish of final yr.
Beneath Cheng, the corporate took on initiatives similar to a megamall and workplace growth subsequent to Hong Kong’s airport and borrowed cash in a manner that individuals inside and out of doors the group described as “aggressive”.
Cheng beforehand instructed the Monetary Instances that New World needed to face challenges together with “excessive rates of interest” and “unsure market situations”, however he believed “this recreation of endurance, paired with consistency and dedication, will finally get us to our targets”.
The chief government stepped down final September after New World reported its first annual loss in 20 years of almost HK$20bn. On Monday, the corporate mentioned Cheng would exit New World utterly, resigning as non-executive vice chair and non-executive director.
Uncertainty round succession planning throughout the family-controlled group has clouded traders’ outlook.
“Whether or not they have the sister [Sonia Cheng] or the daddy [Henry Cheng] managing, the succession challenge continues to be a ache level for this firm,” mentioned Zeng. “Individuals don’t know who’s going to be in cost from the household.”
New World didn’t instantly reply to a request for remark.
Since Cheng’s resignation in September, New World has gone by means of two chief executives. It’s presently led by Echo Huang, who has been with the household enterprise for a decade.
Analysts mentioned the corporate’s subsequent step can be to start out deleveraging so as to cut back its reliance on debt financing.
One choice is asset gross sales, both to 3rd events or to the household’s holding firm. Another choice, in line with Zeng, is a so-called legal responsibility administration train, which might contain a restructuring of its greenback bonds.
The worth of its 4.125 per cent greenback bonds maturing in 2029 edged down on Wednesday to 51.5 cents on the greenback.
