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New World Development stocks jumped on Hong Kong real estate groups that had benefited much, as investors welcomed the end of refinancing talks with the bank and the end of the resignation of the founder’s grandson from his remaining board role.
Shares rose by more than $6 on Wednesday, after announcing it had acquired a HK$88 billion (US$1.1 billion) refinance from the bank on Monday evening after negotiations for the marathon. Hong Kong’s market closed on Tuesday due to public holidays.
Refinance consultations were considered significant due to the new global scale (assets totaling $42.76 billion) and the exposure of key lenders. According to analysts at Barclays, bank loans to us account for 7% of all commercial real estate loans in Hong Kong.
“The market is pricing to consider completing the New World Development Funding Agreement and (possibly) another new loan,” said Zerlina Zeng, head of Asia Strategy for Creditsights, a credit research unit at Fitch Solutions.
One of Hong Kong’s four biggest real estate developers, New World suffered a market slump after a period of increased debt as rising interest rates and a slowdown in mainland China prevented real estate investment.
The stock price is one-fifth of 2020, and has been passed down to CEO Adrian Chen, the grandson of the founder of the New World, with a market capitalization of HK$160 billion, HK$16 billion compared to its net debt of HK$124.6 billion at the end of last year.
Under Cheng, the company has taken on projects like Megamal and office development next to Hong Kong’s airport, borrowing money in a way that people inside and outside the group call it “aggressive.”
Cheng previously told the Financial Times that the New World must face challenges such as “high interest rates” and “uncertain market conditions,” but he believed that “this game of patience, combined with consistency and dedication, will ultimately achieve our goals.”
The CEO resigned last September after New World reported its first annual loss in $2 billion, nearly $2 billion. On Monday, the company said Chen would leave the New World for good and resign as non-executive vice-chair and non-executive supervisor.
Uncertainty about succession planning within family-controlled groups clouds investor prospects.
“Even if it is managed by a sister (Sonia Chen) or a father (Henry Chen), the issue of succession for this company remains the point of question,” Zeng said. “People don’t know who will be in charge of the family.”
New World did not immediately respond to requests for comment.
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Since Chen’s resignation in September, Shinsekai has served as two chief executives. It is currently led by Echo Huang, who has been involved in family business for 10 years.
Analysts said the company’s next step is to launch delabeling to reduce its reliance on debt financing.
One option is to sell assets to a third party or family holding company. According to Zeng, another option is what is called responsibility management exercises. This includes restructuring of dollar bonds.
The price of the 4.125% dollar bond, which matured in 2029, reached 51.5 cents on Wednesday.
