New World Development chairman Henry Cheng
Hong Kong property and retail tycoon Henry Cheng Kar-shun says he is still looking for a successor to run the family’s business and did not rule out selecting an external candidate, throwing into question the role of his eldest son, Adrian Cheng, who currently serves as CEO of Cheng family-controlled New World Development.
In a local television interview on Saturday, the 76-year old magnate said he is still “observing” who might be the next leader of the family’s business empire, which includes Hong Kong-listed builder New World Development (NWD) and jewelry retailer Chow Tai Fook.
The interview was conducted by HOY TV, a media company majority-owned by the senior Cheng, who controls the estimated $21.8 billion family fortune built on businesses established by his father, Cheng Yu-tung, before he passed away at age 91 in 2016. Cheng ranks as Hong Kong’s third-richest man, according to Bloomberg.
Cheng commented that it is not necessary to have a single successor, as different family members can run their respective units. If there are no suitable successors within the family, recruiting an external candidate is also on the table, he said.
Cheng’s comments come as New World Development has been selling off assets in recent months as it grapples with a high debt load, declining profitability, and a sagging share price under the leadership of the junior Cheng, who was promoted to chief executive of the developer in May 2020.
Succession Questions
Since being named chief executive of New World three years ago, Adrian Cheng, now 44, has focused on relabeling the company’s commercial properties under his own K11 brand and aligned its marketing with fashion and design.
Adrian Cheng, chief executive of New World Development
The company’s $2.6 billion Victoria Dockside project in Hong Kong’s Tsim Sha Tsui area was a redevelopment of an earlier New World project, with the company earlier this year declaring the shopping mall portion of the commercial tower to be “Hong Kong’s ‘Silicon Valley of Culture’, a revolutionary cultural-retail destination that transcends traditional shopping malls with its avant-garde design fused with a year-round celebration of arts and culture.”
The younger Cheng focused on linking the 66-storey project with global celebrities, including hosting a party for pop star Pharrell Williams.
The Harvard-educated scion as the eldest of Henry’s six children leads the company’s real estate business, his younger sister, Sonia, is chief executive of New World’s Rosewood Hotels division.
Deleveraging and Disposing
Earlier this month, shareholders of NWD approved a deal to sell the company’s lucrative NWS Holdings construction subsidiary to reduce debt and strengthen NWD’s capital position. With a total debt-to-equity ratio of 69 percent and net gearing ratio of 49 percent as of June, NWD had one of the highest debt ratios among the city’s top developers.
NWD received HK$21.8 billion ($2.8 billion) in proceeds from the buyout of NWS Holdings by the subsidiary’s major shareholder Chow Tai Fook Enterprises, and plans to pay a special dividend of HK$4 billion ($510 million), or HK$1.59 per share, upon completion of the deal. The special dividend comes after the company slashed its annual dividend by 63 percent.
In order to accelerate deleveraging, NWD disposed of HK$37.8 billion ($4.8 billion) worth of assets deemed as non-core over the three fiscal years ending June 2023, with more asset sales flagged for the current fiscal year.
“Management remains committed to deleveraging and expects (net gearing ratio) to reach mid-to-high 30s in fiscal year 2026-2027,” the company said in its annual results presentation.
In December 2022, the developer sold the Pentahotel in the San Po Kong area of Wong Tai Sin to local developer Wang On Properties and US private equity shop Angelo Gordon for HK$2 billion ($260 million).
That deal came just a few months after US private equity firm Ares Management acquired from NWD a 51 percent stake in 83 Wing Hong Street, an office project in Kowloon’s Cheung Sha Wan district for approximately HK$3.1 billion ($392 million).
In July 2022, NWD put up for sale its D Park shopping centre in Tsuen Wan at a reported price of HK$6 billion ($764.4 million).
The company has also undertaken significant capex reductions, continued trimming of operating expenses, and a bond buyback programme to shore up its financial position.
Not Easy to Find
Hong Kong’s property slump and rising interest rates have shaken investor confidence in the city’s developers, with the negative sentiment exacerbated by the developers’ exposure to a persistently weak Mainland economy and currency. A string of defaults by Mainland Chinese developers have added to the pessimism.
Investors have soured on NWD’s shares and bonds, with the company’s stock down 31 percent year-to-date compared to a 12 percent decline in the Hang Seng Index, while three of the company’s perpetual bonds are trading at 40 cents on the US dollar level.
In an earnings conference in September, Adrian said the company would use part of the proceeds from the NWS deal to repurchase bonds, including high-coupon perpetual bonds, and repay loans.
This month, Adrian was appointed by Hong Kong’s Financial Services Development Council to chair the Hong Kong Academy for Wealth Legacy, a newly established institution for promoting Hong Kong as a global family office hub.
In the interview, the senior Cheng listed several qualities that the successor must possess, including talent, virtue, selflessness, leadership, and enthusiasm for the business, noting that such a person “would not be easy to find.”
Cheng added that he wanted to spin off and list different businesses at an appropriate time to boost transparency.
Leave a Reply