Hong Kong: New World's securities tumble after coupon payments deferred
HONG KONG
:
New World Development
, a major Hong Kong property developer, saw its shares and bonds tumble on Monday after announcing it would defer coupon payments on its perpetual bonds, increasing concerns about its liquidity.
The market has been watching whether New World's debt woes might be a harbinger of a sector crisis similar to the one in mainland China that started in 2021.
New World, which has one of the highest debt ratios among its peers and also had two CEO changes last year, said on Friday it would defer coupon payments worth $77.2 million on four perpetual bonds scheduled for June.
Its shares slid 7.5% in morning trade while its 4.8% perpetual bond was bid at 19.090 cents on the dollar, down from 25.4 cents on Friday before the company's announcement.
Hong Kong's property sector's financial woes have yet to reach the level of mainland China where many firms have defaulted on debt payments and former industry behemoth Evergrande has been ordered by a Hong Kong court into liquidation.
That said, New World is the second Hong Kong property developer in recent years after Road King Infrastructure to defer perpetual bond coupon payments. The industry has been under pressure since 2019 due to price falls, lower sales and office occupancy rates as well as higher borrowing rates.
Perpetual bonds have no maturity date and are regarded as a form of equity in accounting. Postponing a senior bond coupon payment would, however, count as a default.
According to Bloomberg News, New World has been in talks with lenders to complete a HK$87.5 billion refinancing deal and recently asked banks to finalise it by the end of June. As of Friday, it had commitments of more than HK$35 billion for the deal, Bloomberg reported.
New World did not immediately respond to a request for comment.
UBS analysts said in a note to clients that the deferring of the coupon payments is expected to save New World some HK$1.9 billion in annual cash interest which would help it service its debt better.
Despite years of efforts to increase cash flow and improve its balance sheet, the company's net debt, including perpetual bonds, stood at HK$165 billion as of end-2024, while net gearing rose further to 91%, according to UBS.
"While NWD has been proactively improving its financial position via various initiatives, in particular its property sales, we see low visibility for its business turnaround," HSBC also said in a research report.
So far this year, New World has achieved contracted sales worth HK$24.8 billion in Hong Kong and mainland China, representing over 95% of its annual target.
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