HK property giant New World’s distress worsens after shock delay on bond interest

HONG KONG – Hong Kong developer New World Development is sliding deeper into distress after jolting investors by delaying interest payments on some bonds, marking the latest flashpoint in a years-long crisis in China’s property market.

New World, which is grappling with HK$210.9 billion (S$34.6 billion) of liabilities, said in a filing late on May 30 that it is planning the deferment for coupons on four perpetual notes. In total, that means it is postponing US$77.2 million (S$99.2 million) of debt obligations, according to Bloomberg calculations.

The bonds concerned slid to record lows. Its 6.15 per cent perpetual notes dropped about three cents to 23 cents on the dollar on June 2 after tumbling more than 30 cents on May 30, on pace for the lowest level since issuance.

Its 4.8 per cent perpetual securities fell 10 cents to 15.5 cents, also on track for a record low and the biggest daily decline since October 2022.

New World shares slid as much as 11 per cent, the biggest intraday drop in about two months.

“While this will not trigger a default, the total amount to be repaid will pile up, so the headwind should remain in the long run,” said Morningstar analyst Jeff Zhang.

A company spokesperson said on May 30 that the company was continuing “to manage its overall financial indebtedness while taking into account the current market volatility, and continues to comply with its existing financial obligations”.

While the market moves on June 2 underscore how investor unease is worsening, there have also been some more positive developments for the builder, which is controlled by the family empire of tycoon Henry Cheng. 

Bloomberg reported earlier on June 2 that as at May 30, the company had received written commitments from banks for 60 per cent of HK$87.5 billion of loan refinancing that it is seeking by the end of June, according to people familiar with the matter.

The company also said on May 30 that total contracted sales year to date amount to about HK$24.8 billion, representing over 95 per cent of the annual sales target, according to its monthly business update.

But markets clearly need more certainty on debt repayment plans after a years-long property slump in the city and mainland China has left New World with one of the highest debt burdens of any Hong Kong developer.

Investors have also become increasingly sceptical after New World reported its first loss in 20 years for the financial year ended last June. 

The company’s stock is trading at a price-to-book ratio of just 0.06, with a market capitalisation of US$1.4 billion versus about US$17 billion at its peak in 2019. BLOOMBERG