Hong Kong’s New World Development gets shareholder nod to sell unit
SHAREHOLDERS of Hong Kong’s New World Development (NWD) on Thursday (Nov 2) approved a deal to sell the company’s lucrative construction subsidiary in a buyout deal to help it cut debt.
The property developer, which has one of the highest debt ratios among peers after a years-long expansion spree, would receive US$2.8 billion from the sale of NWS Holdings to its major shareholder.
The deal “generates immediate value for shareholders, repositions the company around its property businesses, and supports its broader efforts to reduce leverage in the expectation of persistently high interest rates”, NWD said in a statement, after independent shareholders voted overwhelmingly to approve the plan.
Falling property prices and rising interest rates have put the city’s top developers under pressure in one of the world’s most expensive property markets.
Chow Tai Fook Enterprises (CTFE), which holds about 45.2 per cent of NWD shares, offered in June to buy roughly 97 per cent of its stock.
NWD has said it would pay a special dividend of HK$4 billion (S$697 million), or HK$1.59 per share, on completion of the deal.
“The deal is good for NWD’s shareholders because, first, the company’s debt ratio will drop and second, they will get a high special dividend,” said Alvin Cheung, associate director of Prudential Brokerage in Hong Kong, who does not hold NWD shares.
Analysts said the US$2.8 billion, which is equivalent to 15 years of dividend income from NWS, would give NWD an immediate liquidity boost, but they cautioned about the impact on future profits. In the 2023 financial year, NWD posted a net profit of HK$900.9 million, 28 per cent less than a year ago. Without NWS, it would have posted a net loss of HK$510.1 million.
“NWD’s balance sheet will be strengthened... yet it is inevitable we see some negative impact on future earnings and dividends,” said CLSA analyst Alvin Wong in a report, who slashed NWD’s target price to HK$10.96 from HK$29.90 after the firm cut its dividend by 63 per cent to preserve capital.
Debt reduction
NWD’s total borrowings including loans and bonds stood at HK$185.3 billion as of end-June, while it had total cash of HK$54.5 billion. Its net gearing ratio, including perpetual bonds, was around 80 per cent, analysts said.
After a string of Chinese developers defaulted since mid-2021, investors have been dumping NWD’s shares and bonds. The stock has lost 33 per cent so far this year, and three of its perpetual bonds were traded at 40 cents on the US dollar level.
Reuters reported early this year NWD was talking to investors about a sale of a majority stake in an office tower by offering a guaranteed capitalisation rate of around 4 per cent, a deal structure that highlighted its eagerness for extra liquidity.
Company chief executive officer Adrian Cheng told an earnings conference in late September the firm would use part of the proceeds from the NWS deal to repurchase bonds, including high-coupon perpetual bonds, and repay loans, a move analysts said could reduce interest expenses and book gains from buying back debts at discounts.
Other efforts to deleverage include cutting capital expenditure and lifting rental incomes, the company said.
“It’s going to be tough two to three years for Hong Kong businesses to recover; it’s not going to be easy for New World,” said a fund manager who holds NWD’s US dollar bonds and declined to be named because he was not authorised to media. “But it’s not a default scenario,” he added, saying banks and NWD’s parent company were being supportive.
Shares of NWD closed up 0.95 per cent, while NWS eased 0.2 per cent. The Hang Seng Property Index rose 1.9 per cent. REUTERS
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