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Shares of New World Development, the heavily indebted Hong Kong property group, jumped as investors welcomed the end of its refinancing talks with banks and the resignation of the founder’s grandson from his remaining board roles.
Shares rose as much as 11 per cent on Wednesday to above HK$6 after the company announced on Monday evening it had secured support from banks to refinance loans of HK$88bn (US$11bn) following marathon negotiations. Hong Kong’s markets were closed on Tuesday for a public holiday.
The refinancing talks were seen as crucial because of New World’s size — with assets totalling HK$427.6bn — and the exposure for major lenders. Bank loans to the company account for 7 per cent of all commercial real estate loans in Hong Kong, according to Barclays analysts.
“The market is pricing in the completion of the New World Development financing deal and looking at the [potential for] another new loan,” said Zerlina Zeng, head of Asia strategy at CreditSights, the credit research unit of Fitch Solutions, who added that fresh funds could allow the company to offer better terms to bondholders in the event of further restructuring.
New World, one of Hong Kong’s four biggest property developers, has been hit by a market downturn following a period of debt-fuelled expansion, as elevated interest rates and an economic slowdown in mainland China have deterred real estate investment.
The stock price is a fifth of what it was in 2020, when the New World founder’s grandson, Adrian Cheng, took over as chief executive, and its market capitalisation stands at HK$16bn, compared with net debt of HK$124.6bn at the end of last year.
Under Cheng, the company took on projects such as a megamall and office development next to Hong Kong’s airport and borrowed money in a way that people inside and outside the group described as “aggressive”.
Cheng previously told the Financial Times that New World had to face challenges including “high interest rates” and “uncertain market conditions”, but he believed “this game of patience, paired with consistency and dedication, will eventually get us to our goals”.
The chief executive stepped down last September after New World reported its first annual loss in two decades of nearly HK$20bn. On Monday, the company said Cheng would exit New World completely, resigning as non-executive vice chair and non-executive director.
Uncertainty around succession planning within the family-controlled group has clouded investors’ outlook.
“Whether they have the sister [Sonia Cheng] or the father [Henry Cheng] managing, the succession issue is still a pain point for this company,” said Zeng. “People don’t know who is going to be in charge from the family.”
New World did not immediately respond to a request for comment.
Since Cheng’s resignation in September, New World has gone through two chief executives. It is currently led by Echo Huang, who has been with the family business for a decade.
Analysts said the company’s next step would be to start deleveraging in order to reduce its reliance on debt financing.
One option is asset sales, either to third parties or to the family’s holding company. Another option, according to Zeng, is a so-called liability management exercise, which would involve a restructuring of its dollar bonds.
The price of its 4.125 per cent dollar bonds maturing in 2029 edged down on Wednesday to 51.5 cents on the dollar.
