HONG KONG – The Corniche was supposed to generate HK$30 billion (S$5.2 billion) in sales after the developers bought the land overlooking the South China Sea for a record price.

Six years later, the project sits between a sewage treatment facility and a driving school, bearing little resemblance to the French Riviera its name evokes. A nearby shopping mall, converted from an industrial building, sells discounted clothes and furniture.

The property mirrors the fate of its developers Logan Group and KWG Group Holdings, which are facing at least US$10 billion (S$13.5 billion) in offshore debt.

Creditors are demanding the two Chinese developers repay after defaulting. In a worst case scenario, they could lose The Corniche if banks demand immediate loan repayment.

Out of the 295 units, only three have been sold as of May 22, according to Centaline Property Agency.

“All the developers at the time were betting on a different economic policy environment in China,” said Ms Monica Hsiao, founder and chief investment officer of Triada Capital. “Being able to monetise an offshore project is likely just one small piece for them to deal with in a long restructuring.”

Record land price

Despite its steely frame and floor-to-ceiling windows, The Corniche’s location is proving a harder sell. Its curved silhouette stands in contrast with the rest of Ap Lei Chau, once a fishing island that has become a middle-class neighbourhood adjacent to public housing projects.

When the developers paid a record HK$16.9 billion for the land, it epitomised the extravagance of Chinese developers. They joined a wave of peers snapping up land at prices that awed local peers.

Logan and KWG envisioned the 1,340 to 9,633 sq ft units to capture the property boom, underpinned by an influx of wealthy Chinese who preferred such designs.

Then the tides turned. Chinese regulators clamped down on excessive borrowing, exacerbating liquidity shortages for developers already on shaky financial ground. Coupled with Covid-19 lockdowns and an economic trough, it triggered more than 100 Chinese property dollar bonds to default.

In Hong Kong, the real estate market also froze due to population outflows brought on by protests, political tightening and travel restrictions.

Suddenly, The Corniche was looking very pricey. Since sales began in January, the three units had been sold for between HK$164 million and HK$185 million.

That translates to about HK$50,000 per square foot, nearly 79 per cent more expensive than Hong Kong’s benchmark luxury residence Bel-Air.

Logan and KWG each own 50 per cent of The Corniche. Both have creditors and banks lining up. Tension is brewing as the different parties tussle over a best solution.

Some of the biggest banks operating in Hong Kong provided HK$10.2 billion in loans to finance the project. They include HSBC Holdings, Standard Chartered and Industrial and Commercial Bank of China (Asia). The companies held a call with lenders last week to discuss the loan.

US$10 billion debt

Logan has more than US$6 billion in offshore borrowings that it is trying to restructure. KWG has US$4 billion of offshore bonds outstanding, according to data compiled by Bloomberg.

The Corniche could become a prime target for seizure. The banks would get first dibs, but other bondholders could also try to salvage money.

It is easier to get hold of developers’ assets in Hong Kong than on the mainland, said Mr Ronald Thompson, managing director at advisory and restructuring firm Alvarez & Marsal.

That is just what many have done. Banks seized the Hong Kong commercial property of Chinese property company Cheung Kei Group earlier this year. The founder’s US$271 million home was also taken away by creditors in March.

China Evergrande Group’s Mr Hui Ka Yan lost his Hong Kong mansion and an office building to receivers. BLOOMBERG