New World bondholders want more disclosure on financing plans
The distressed Hong Kong builder has less than three weeks to complete an HK$87.5 billion (S$14.3 billion) loan refinancing deal before a covenant waiver expires at the end of the month. Debt advisers, meanwhile, have said that they think a liability management exercise on the bonds would be the only way for New World to preserve equity value, and are urging noteholders to band together to resist any such move.
As this plays out, an information gap is creating transparency concerns for bondholders, hungry for any scraps of intelligence to make trading decisions.
Unable to get answers
A number of them said they haven't been able to get answers from New World in recent months on what steps it is planning to ease a liquidity crunch made worse by a market sell-off.
On the other hand, some banks got to see a cash flow projection in April with details about the company's planned debt payments over the next three years, according to other people familiar with the matter.
While such moves can irk bondholders, it isn't uncommon for distressed firms to prioritise communication with bank lenders. Banks often have better access to company financials through loan covenants or lending relationships, while unsecured bondholders typically rely on public filings or voluntary disclosures.
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New World bondholders have another pressing concern: Over the past three months, the company's perpetual bonds have lost an average of more than 40 per cent of their value, according to Bloomberg News calculations.
The company's next steps could bring more pain for bondholders, according to debt adviser PJT Partners. During a recent call with bondholders, PJT said that it expects New World to pursue discounted exchanges as part of a potential liability management exercise. If such a development comes after the loan refinancing, it could cut recovery ratios to 30 per cent from 68 per cent for unsecured bond investors, PJT warned.
Frustration among bondholders escalated after a recent decision by New World to delay some interest payments on perpetual notes. The move was a shock to holders, some of whom had been reassured in February, when chief financial officer Edward Lau said on an earnings call that net cash flow from operations was almost enough to cover capital expenditures, net interest expenses and perpetual bond coupon payments.
Engaging with banks
Many bondholders have run into dead ends when seeking information from the company, with messages to New World's investor relations manager getting no response, according to people familiar with the matter. Some have had to monitor the news closely to figure out what is going on with the company, they added.
In contrast, New World has been actively engaged with more than 50 banks as it works to complete its refinancing deal. Bankers have been in close contact with the developer's finance team, receiving updates regarding the company's debt plans, other people said.
New World didn't immediately respond to a request for comment. It said in a press briefing earlier this year that it has complied with all disclosure requirements.
While unhappy they have been kept at arm's length, bondholders largely still hope the loan refinancing goes smoothly. The refinancing 'is progressing well and, once completed, should enhance New World's liquidity position and provide the company with additional time to execute its business turnaround,' said Dhiraj Bajaj, Singapore-based chief investment officer of Asia fixed income and equities at Lombard Odier Investment Managers.
New World, whose key Hong Kong projects include Victoria Dockside and the new 11 Skies shopping mall, has about US$7.9 billion in outstanding bonds, according to Bloomberg-compiled data. While it doesn't have any US dollar notes maturing this year, it has two Hong Kong dollar-denominated bonds with a combined US$168.5 million due in March next year.
The next big test for the developer comes Monday when it has a US$5.05 million coupon payment due on a 5.875 per cent bond. If the company decides not to pay the coupon on that day, it would have a 14-day grace period, after which an event of default would be triggered, according to bond documents seen by Bloomberg News. BLOOMBERG
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