New World’s Victoria Dockside project is being offered as loan collateral (Image: KPF)
China’s real estate crisis isn’t confined to the mainland anymore, with top-five Hong Kong builder New World Development announcing late Friday that it will defer payments on four sets of bonds due this month.
The decision to forgo paying $77 million in interest on the four sets of perpetual securities this month comes as the developer controlled by the family of Hong Kong’s third-richest man, Henry Cheng, is scrambling to refinance $11 billion in loans as slower home sales in mainland China and bets on Hong Kong trophy projects have stretched New World’s resources.
“The company continues to manage its overall financial indebtedness whilst taking into account the current market volatility and continues to comply with its existing financial obligations,” New World said in a separate statement.
Henry Cheng’s oldest son, Adrian, stepped down as chief executive of New World in September last year after the company posted its first loss in two decades, falling HK$17.1 billion ($2.2 billion) into the red for the fiscal year ended 30 June. For the half-year ended 31 December New World lost HK$6.63 billion after achieving HK$502 million in profit during the same period a year earlier.
Struggle for Liquidity
The four sets of perpetual securities total $3.4 billion in value with New World having faced a coupon deadline of 9 May for the Series A notes and a target payment date of 10 May for the Series B instruments.
Henry Cheng is spending a lot of time negotiating with bankers (Image: New World Development)
The coupon on the Series C bonds was to come due on 16 June, while the Series D had a deadline of 22 June. News of the coupon deferments sent the price for New World’s $1.2 billion in perpetual securities issues in June 2021 to 31.2 cents on the dollar at the close of trading on Friday, according to market data.
New World’s decision to defer its coupon payments due this month comes after the company said in late May that it would not be redeeming a $345 million perpetual bond by 16 June. By passing on its opportunity to repay that security New World let its interest rate on the instruments jump from 6.15 percent to over 10 percent.
The company has also told banks that it would like to finalise a deal to refinance HK$87.5 billion ($11 billion) in loans by the end of this month, with as many as 50 banks said to be involved in that funding effort.
A Bloomberg account on Friday indicated that New World is also speaking to banks about joining a consortium providing a HK$15.6 billion loan backed by its Victoria Dockside project in Hong Kong’s Tsim Sha Tsui area. That financing is being arranged by Deutsche Bank.
Asset Sales Streak
In announcing the company’s interim loss in February, New World CEO Echo Huang, who took over the job late last year after Adrian Cheng’s replacement, Eric Ma, lasted just two months in the role, said the developer would accelerate asset sales and cut expenses.
Already in November the Cheng family’s private holding company, Chow Tai Fook Enterprises, agreed to buy New World’s 75 percent stake in the Kai Tak Sports Park project in Kowloon for HK$416.7 million and assume responsibility for a HK$679.9 million loan linked to the development.
Last month New World was reported by Philippine media citing statements by Ayala Land, to be in talks to sell the New World Hotel in Manila to the local developer for an unspecified sum.
In June of last year New World sold its 30 percent stake in a Shenzhen office tower to Chow Tai Fook Enterprises for an initial consideration of RMB 1.44 billion (then $198 million).
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