New World Development (NWD) can't seem to catch a break. Two rounds of top management shake-up to tackle its debt load and the loss of blue-chip stock status are threatening to spiral into a crisis of confidence.
The stock slumped 1.2 per cent on Tuesday to HK$5.65, bringing the losses this year to more than 50 per cent while the benchmark Hang Seng Index advanced 17 per cent.
The highly indebted developer is said to have sent out a letter to its bank lenders, seeking a waiver on loan conditions, Debtwire reported last week, citing people it did not identify. The firm is seeking forbearance, after its net debt-to-assets ratio breached the 100 per cent threshold that may allow its lenders to recall their loans.
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NWD did not immediately reply to a request for comment.
"Despite the company's recent CEO change, deleveraging will still be a long process," said Jeff Zhang, an equity analyst at Morningstar in Hong Kong. "It's too early to say it will definitely default," he said, adding that NWD also has other financing channels in mainland China, "so refinancing can continue for the time being."
Prospective buyers at the Pavilia Forest sale launch in Kowloon Bay on November 2, 2024. Photo: Dickson Lee alt=Prospective buyers at the Pavilia Forest sale launch in Kowloon Bay on November 2, 2024. Photo: Dickson Lee>
NWD had HK$123.7 billion (US$16 billion) of consolidated net debt on June 30, according to its annual report. At 55 per cent, its net gearing or debt-to-equity ratio ranked among the highest in the industry. Interest-bearing loans and bonds stood at HK$151.6 billion.
Chairman Henry Cheng Kar-shun picked Echo Huang Shaomei as the new group CEO on November 29, replacing Eric Ma Siu-cheung who held the top post for barely two months. He had replaced Adrian Cheng in September, soon after the group reported a record HK$19.7 billion annual loss.
The Cheng family is ranked as the third wealthiest in Hong Kong with an estimated fortune of US$22.1 billion, according to Forbes. The family controls 45.2 per cent of NWD, which was ejected from the Hang Seng Index on December 9.
Chairman Cheng has tried to bring down its debt load. The firm refinanced some of its more expensive loans during the last financial year, and bought back US$153 million of its outstanding dollar-denominated bonds in August.
Still, Huang may struggle to steady the ship, analysts said. Two of NWD's major upcoming residential developments in North Point and Wong Chuk Hang could incur losses, judging from their high land costs and the depressed pricing of recent projects, they estimated.
The company announced earlier this month the forthcoming sale of residential units at State Pavilia - the first phase of its redevelopment project at the former State Theatre site in North Point. Phase one, comprising 388 units, is slated to come on the market early next year.
In Wong Chuk Hang, the "package five" project of the Southside residential neighbourhood has been approved in October for a presale, providing 825 units to the market, according to the Lands Department. The estimated construction cost of at least HK$30,000 per square foot is higher than the price of HK$22,000 per square foot for new launches in the district, according to Joseph Tsang, chairman of JLL Hong Kong.
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