Hong Kong’s New World Development Tumbles On Bond Payment Delays Amid Debt Troubles

Shares of New World Development, controlled by Hong Kong’s billionaire Cheng family, dropped almost 6.5% on Monday after the debt-laden property developer deferred interest payments on several bonds, deepening investor concerns over its liquidity.

In a filing to the Hong Kong stock exchange on Friday, New World said it had postponed the coupon payments on two perpetual bonds due on June 9 and June 10. The company added that it plans to defer payments on two other bonds due later this month.

New World has been struggling to turn around its business amid an ongoing property downturn in Hong Kong and mainland China, prompted by a mix of challenges including the pandemic and interest rate hikes. In the six months ended December, the company posted a net loss of HK$6.6 billion ($846 million), due to writedowns on its residential and commercial properties. With improved property sales, its revenue dipped 1.6% to HK$16.8 billion. Weighed down by HK$124.6 billion in debt, New World reported a net gearing ratio of 57.5%, the highest among Hong Kong major property developers.

New World’s decision to defer bond interest payments “is not too surprising given that it still sees quite high liquidity pressure,” said Jeff Zhang, an equity analyst at research firm Morningstar. “Despite the recent acceleration of property sales, we don’t really think New World’s liquidity has improved significantly.”

Zhang said New World’s progress of bond interest payments hinges on loan refinancing. The property developer has asked banks to refinance HK$87.5 billion of its loans by the end of June, and had so far secured written commitments for 60% of that amount, Bloomberg reported on Monday, citing unnamed sources. “If refinancing is proceeding as planned, New World will likely avert any imminent default,” said Zhang.

In February, New World CEO Echo Huang set out plans to reduce the size of the company’s debt, including cutting capital expenditures and improving rental returns. Huang, ex-CEO of subsidiary New World China Land, in November replaced Eric Ma, just two months after the former New World COO was promoted to the top job. It came after Adrian Cheng, the third-generation scion of the Cheng family and the erstwhile heir apparent, stepped down as New World’s CEO in September as company reported its biggest-ever annual net loss.

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