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One in all Hong Kong’s greatest property builders is in talks to refinance billions of {dollars} in financial institution loans following years of formidable debt-fuelled enlargement, including to pressures within the Chinese language territory’s struggling actual property market.
New World Growth borrowed cash for tasks that individuals inside and outdoors the corporate have characterised as “aggressive”. They embrace a HK$20bn (US$2.6bn) retail and workplace house close to Hong Kong’s airport and a number of other mainland Chinese language developments, together with a $1.3bn mixed-use complicated in Shenzhen.
This week the corporate mentioned it was “actively engaged with its collectors in relation to the refinancing of its current loans”. It’s also underneath stress to repay bondholders, with web debt at HK$124.6bn as of the tip of final 12 months. Curiosity bills exceeded working income within the second half of final 12 months, an indication of monetary misery.
The refinancing talks are being carefully watched by monetary establishments and buyers due to New World’s dimension — with belongings totalling HK$427.6bn — and the publicity for main lenders.
Financial institution loans to New World account for 7 per cent of all industrial actual property loans in Hong Kong, in keeping with Barclays analysts, who mentioned in a notice that the corporate’s “systemic significance” to town was nearly twice that of collapsed developer Evergrande to mainland China.
Failure within the negotiations would additional hit sentiment within the metropolis’s already faltering actual property market and threat contagion into the weak mainland Chinese language property market.
One of many newest warning indicators was the corporate’s deferral of curiosity funds due this month for perpetual bonds. Whereas it was capable of make different curiosity funds due this month to bondholders, market considerations over a attainable default stay. Shares are down 22 per cent on the 12 months, and its market capitalisation has fallen to HK$14bn.
Adrian Cheng, a grandson of New World’s founder, stepped down as chief government in September, on the identical day his firm reported its first annual loss in twenty years of almost HK$20bn.
“New World Growth’s leverage is excessive, and its capital construction shouldn’t be sustainable,” mentioned Zerlina Zeng, head of Asia technique at CreditSights, the credit score analysis unit of Fitch Options. “The corporate has taken a number of debt to develop in mainland China, which didn’t bear a lot fruit because of the property downturn there.”
New World is certainly one of Hong Kong’s largest conglomerates, and the household behind it has pursuits spanning retail, journey and luxurious. A customer to town would possibly keep within the Cheng household’s Rosewood lodge, eat lunch in New World’s Victoria Dockside complicated and purchase a memento from jeweller Chow Tai Fook, the household’s first enterprise. The Chengs even have pursuits overseas, with Rosewood opening a luxurious lodge on the positioning of the previous US embassy in London this summer time.
Epitomising New World’s woes is 11 Skies, billed as Hong Kong’s reply to Singapore’s success in turning Changi airport right into a retail vacation spot. The three.8mn-sq-ft complicated subsequent to Hong Kong airport’s second terminal, which features a mall and workplaces, was meant to draw travellers and locals.
However the property has been hampered by a delay within the expanded terminal’s completion and a softening of Chinese language tourism into Hong Kong as customers within the mainland curb spending within the wake of a property crash. K11, New World’s premium mall model, has struggled in mainland China with weak shopper sentiment.
Cheng beforehand instructed the Monetary Instances that the corporate needed to face challenges together with “excessive rates of interest” and “unsure market circumstances”, however he believed “this sport of endurance, paired with consistency and dedication, will finally get us to our objectives”.
Since Cheng’s departure, New World has gone via two chief executives. The continuing refinancing talks contain HK$87.5bn in financial institution loans, Bloomberg has reported.
“Bondholders don’t have a lot clue on what’s going with NWD’s financial institution mortgage refinancing or different refinancing plans,” mentioned Zeng. “They stopped speaking with bondholders . . . we couldn’t pay money for NWD since November final 12 months.”
New World instructed the Monetary Instances: “We don’t touch upon market rumours, and shouldn’t have any feedback aside from what we now have already disclosed to the market.”
The corporate has pledged key belongings, together with Victoria Dockside, as collateral in talks with banks to remodel unsecured loans into secured ones, in keeping with folks accustomed to the matter. It has bought a number of accomplished residential tasks at a reduction in current months.
Hong Kong authorities are eager to keep away from a property disaster that might drag down actual property costs and have an effect on the broader financial system. Town’s de facto central financial institution has informally guided lenders over the previous 12 months to be extra versatile on distressed property loans, in keeping with folks accustomed to the discussions.
“It’s the HKMA’s long-standing supervisory coverage that banks should guarantee acceptable and well timed mortgage classification and provisioning always,” the Hong Kong Financial Authority instructed the FT, including that it didn’t see any focus threat on the borrower degree and that lenders had been properly capitalised.
Adrian Cheng now oversees the K11 Ideas model, whereas his siblings lead completely different arms of the household empire, with Sonia taking care of Chow Tai Fook Jewelry and Rosewood, Brian caring for CTF Companies, and Christopher as co-chief government of CTFE.
The household’s non-public funding automobile, Chow Tai Fook Enterprises, has in a roundabout way injected money into New World, however it has selectively purchased belongings from the property group, together with an fairness curiosity in Hong Kong’s Kai Tak Sports activities Park in November and a stake in a Shenzhen workplace tower final June.
